August 26, 2009, 10:04 am
Housing prices
The slight recovery in housing prices comes as something of a surprise. Like Calculated Risk, I would have expected the large overhang of unsold houses to keep downward pressure on.
That said, the big bubble has clearly been deflated. I’ll borrow one of CR’s charts, this one showing the ratio of an index of home prices to an index of rents (so it’s kind of like a PE ratio for stocks):
That said, the big bubble has clearly been deflated. I’ll borrow one of CR’s charts, this one showing the ratio of an index of home prices to an index of rents (so it’s kind of like a PE ratio for stocks):
In 2005-6 it was a slam-dunk prediction that housing prices were headed for a huge fall; that was obvious to everyone except the likes of Alan Greenspan and everyone else who mattered (and a few who didn’t, like Larry Kudlow.) At this point, squinting hard at various measures suggests that housing prices are still a bit high, but we’re within debating range. Home prices could stabilize not too far from here.
But even if the big bust is over, that doesn’t mean we’ll see a rebound; at best, this is the new normal. 2005 isn’t coming back.
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