Another 25 Ouch Thats Going to Leave a Mark

The 2009 Housing Price Index Analysis: Understanding the Drop

The graph illustrating the Federal Housing Finance Agency’s (FHFA) House Price Index (HPI) from 1975 to 2009 provides a stark visualization of the housing market’s trajectory before, during, and after the bubble period leading up to the 2008 financial crisis.

Graph Breakdown

  • The Red Line: This indicates the price trend using 25 years of data to predict prices from 2000 forward. It represents what housing prices should have been based on historical trends.
  • The Blue Line: This shows the actual price data after 1999, including the spike in housing prices that denotes the bubble (point X, 2nd Quarter 2007, with an index of 383).
  • Point Y: The index for the 2nd Quarter of 2009 sits at 360.
  • Point Z: The estimated index at trend is 279.

Key Takeaways from the Graph

  1. Extent of the Fall: The graph indicates that by the 2nd Quarter of 2009, housing values had fallen only 25% of the drop required to realign with the historical trend.
  2. Total Loss Calculation: The total loss from the peak (point X) to the index at the trend (point Z) would be 104 points (383 – 279).
  3. Percentage Change: The fall in values from the peak to the current index (Y) is 6%, and from the peak to the trend index (Z), it would be 27%.

Implications for the Housing Market

The data suggests that while the market had corrected somewhat by 2009, it had not fully realigned with the historical trend. This implied that there could be further adjustments needed, potentially affecting homeowners, investors, and the broader economy.

Impact on Homeowners and Buyers

For homeowners, the graph could mean a continued risk of negative equity, where the mortgage owed is more than the house’s value. For potential buyers, it could indicate a future opportunity for lower prices if the market continued to adjust downwards.

The Broader Economic Perspective

The real estate market is closely tied to the overall economy. A significant adjustment in housing prices can impact consumer wealth, spending, and the ability to borrow against home equity, which in turn can affect economic growth.


The FHFA’s HPI graph serves as a historical record of the housing bubble and its aftermath. It’s a reminder of the market’s volatility and the importance of understanding economic indicators within the context of broader economic cycles. The graph also underscores the necessity for cautious optimism during recovery periods, as market corrections can be gradual and prolonged.

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