Housing Discussion with Charts
March 17, 2008
– Comments (9) |
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I see the above chart as a great place to start. We can get into a whole discussion of why home prices skyrocketed as they did at another time, but the important point is that home prices in 2007 as a ratio to disposible income were higher than they had been since the early 1950s. Seeing how quickly we had arrived at that point on a chart like the one above makes it so clear that a correction was inevitable. And indeed, judging by the sharp peaks in 1973 and 1989, it is clear that the present correction will be deep and severe. The forecast last year by Bank of America for the housing downturn to last through at least 2010 sounds conservatively reasonable, though I believe the de-leveraging of derivatives that will accompany this particular housing crash will make it more severe and longer-lasting than any of the previous corrections on the chart.
The next chart, below, tells me that we are still in the very early stages of the housing downturn, since we have yet to see meaningful reductions in the mean sales price of existing homes on a national basis. Sure, the losses have shown up first in states like Florida and California, but the suggestion by pundits that this suggests a geographically contained recession in just a few states is beyond ridiculous.
The above graph shows about a 10% correction in nationwide mean sales price in place. Looking backwards a bit on this chart reveals how recent these price increases were, which in my opinion portends the depth of the inevitable correction. Again, as a conservative base I would anticipate a 20% reduction, especially since devaluation of the dollar / inflation will serve to keep the dollar amount propped up, but I maintain the possibility for a much deeper correction in the neighborhood of 30% or more.
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