Getting Back on Track: Are We There Yet?
This post first appeared in the SPECIAL EDITION: Cirios Trends: A Decade in Flux
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We wrote back in June of 2008: “The Holy Grail de jour of financial market prognostication is predicting the bottom in housing. It’s a fool’s errand, however.”
Identifying the low point in any asset class is an effort best left for speculators and academics. The former must be willing to be wrong and lose big, the latter can play Monday Morning Quarterback and look back in time to identify turning points that happened months, if not years in the past.
With all that said, it’s still helpful to look at how far home prices have fallen since their peak in 2007. As can be seen below, we are now back to prices as they stood in 2004, during the height of the boom. This is hardly comforting.
Statistics being what they are, however, it also depends on how you keep score. The Case-Shiller Home Price Index, a widely quoted metric that compares paired sales (which measures the change in sales of individual homes over time), places us closer to 2003 values. Some individual markets look a bit better, others far worse.
Another interesting item to note is the lag between the peak in year-over-year home price appreciation and a peak in prices. Looking below, we see that it took almost 3-years for the high of 14.3% y/y appreciation to be matched with a high median price of $248,467. Even the nominal peaks (ignoring moving averages) are 20 months apart, meaning year-over-year data can be viewed as a leading indicator for nominal prices.
Heading in the other direction, there is a similar lag between the most precipitous fall in prices and the actual bottom in prices. Comparing what we see below to the chart on the next page foretells patience before hailing the all-clear: A mere 6-months have passed since what many believe to be the nadir of home price declines.
Tags: home prices, inflation, median home price