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Brian C
Joined: 13 Feb 2009
Posts: 98
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 Posted: Wed Apr 01, 2009 7:52 pm GMT Post subject: Home Prices: Low, But Still No Bargain |
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http://online.wsj.com/article/SB123853857749575441.html#articleTabs_comments%26articleTabs%3Darticle
| Quote: |
Even today, prices overall have only reverted to levels seen in late 2003. Yet by that stage the bubble was already well inflated. You would expect a crash of this scale to retrace its steps much further. To find pre-bubble prices you have to go back to about 2000 – when values overall were about a third lower than they are today.
Is there a bullish scenario for house prices? Sure. If all the government spending to turn around the economy reignites inflation in a year or two—as some predict—house prices could begin climbing again. But if the current price deflation continues, look for house prices to keep dropping.
Over the long term, average home prices have tended to track average earnings. And by this measure the market may have much further to fall.
I looked at Case-Shiller's index back to 1987 and compared it to federal data on average earnings. The result, rebased to 100 in January 1987, can be seen here. And it's alarming. By this (admittedly very simple) measure, today's home prices are actually more expensive, in relation to average earnings, than at the peak of the 1989 property bubble.
Equally noteworthy is that when the last property bubble burst, it took about eight years before the market showed really strong signs of revival. This bubble was far, far bigger. |
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