Another 25%? Ouch, that’s going to leave a mark…..
by Tom on November 18, 2009
in Market Musings, house prices
Okay, a couple of things that this chart assumes:
- That from 1975 to 1999 was “normal” enough to indicate a statistical trend. I think the case could be made that it was.
- That we’re going to eventually get back to that trend line. I think a case could be made that we will.
- If both of those assumptions are indeed correct, then we’re heading into a scenario where we have quite an adjustment to go through in terms of a drop in peak housing values until we are back into range with that statistical trend.
What do you think? Tell me why you think he’s wrong……
Tom Vanderwell
Values Have Dropped Only 25% of the Fall Needed to Reach Trend «
PRICE TRENDS / WAR OF THE WORLDS (Part 4): Property owners nationwide have lost only one dollar for every four dollars they can ultimately expect to lose on their home.The good news according to the leading data series issued by the United States government is that prices have only fallen 6 percent. If you are a homeowner, you are wealthier than you knew. The bad news is you still have three dollars to lose for every one dollar which has already been lost.
The total projected fall from the Federal Housing Finance Agency (FHFA) “All Transactions Index”, which begins in 1975, shows a peak-to-trend fall of 27%. Since prices are 6% lower by this measure, prices must still fall an additional 23% from today for prices to revert to trend.
The assumption built into these estimates is that prices in the years 1975 to 1999 advanced at a typical rate. A trend line was generated to the present based upon that 25-year period. The chart depicts the divergence of the trend established from 1975 to 1999 and the actual prices recorded from 2000 to 2009.
The FHFA prediction of a total fall of 27% is far less than the total fall of between 49% to 60% predicted by Case-Shiller. Based upon the four data sets reviewed in the last few weeks (see summary below), we can estimate a total fall of between 27% to 60% from the bubble top to the long-term trend. The average of the four indexes projects a total fall of 41% from the bubble high to the trend bottom.
Looking ahead from today, the average of the four indexes predicts that property values will fall 26% from our current price levels.
I strongly suspect if one created the same chart showing the 25 years 1950-1975, we would see the trend line was nothing akin to the years about which you’re referring. Am I making any sense? My point is that what went on the last 25 years isn’t necessarily the template that will apply to the following 25 years.