On April 7, the CalculatedRisk.com blog had a post titled “House Prices: Nominal, Real, Price-to-Rent.” The following chart is from that post, and it shows the historical price trends of both the Case-Shiller (Composite 20 Index as well as the National Index) and the CoreLogic indices:
(click on chart to enlarge image)
From the above chart, one can see why, especially both before and during the “bubble years,” there was a widely-held perception that “house prices never decline.”
Many people currently believe that either the “bottom is in” with regard to prices or such a “bottom” is close at hand. One can see this among the consensus in the MacroMarkets March 2011 Home Price Expectations Survey, as well as various other sources.
While many can cite various statistics and valuation measures justifying their beliefs that “real estate has bottomed” at these levels, since the peak there have been many of these incorrect proclamations and analyses.
I believe that the continual decline in residential real estate is, in part, a testament to how “tricky” predicting asset bubbles can be.
I have written extensively about the residential real estate situation. For a variety of reasons, it is exceedingly complex. While at this time, as aforementioned, many people have an optimistic view regarding future residential real estate prices, I continue to believe that such a view is unsupported on an “all things considered” basis. Furthermore, there exists outsized potential for a price decline of severe magnitude, unfortunately. I discussed this downside, based upon historical price activity, in the October 24, 2010 post.
The Special Note summarizes my overall thoughts about our economic situation
SPX at 1324.46 as this post is written