You have undoubtedly heard of the Case-Shiller Index. It is a commonly cited index for tracking housing prices. The December read is now out showing a YoY drop of 18.5%, worse than predicted. That is not what is scaring me.
The "Shiller" part of the index comes from its co-producer Yale Professor Robert Shiller. He has an index of American home prices going back to 1890. According to this index, the housing bubble we just experienced was by orders of magnitude worse than any other we have ever seen in this country. Moreover (you better be sitting) housing prices have a lot further to drop, and I mean a LOT further, before returning to the trend line. He believes we are only halfway back to fair value and usually during a correction we overshoot fair value. The linked interview is well worth the five minutes it takes to play. If you do not have the time, the linked chart tells it all.
http://www.businessinsider.com/shiller-house-prices-still-way-too-high-2009-2
You add into this equation the effects of a global downturn, job losses, reduced wages and the like and one can easily imagine us overshooting the trend line significantly.
I firmly believe we will not find a bottom on the economy until we find a bottom on housing. From this data, that bottom is still a long way off, as in 3-5+ years off, and it is a lot lower than most have predicted. That is far worse than this doom-and-gloomer was thinking. We can only hope Robert Shiller is wrong, but unfortunately this is one guy who knows what he is talking about on real estate.
Disclosures: None
Subscribe to:
Post Comments (Atom)
No comments:
Post a Comment