Bigger Boom, Bigger Bust

Submitted by Rich Toscano on December 18, 2007 - 10:52pm

The Union-Tribune today ran a very gloomy article on the latest DataQuick housing numbers, a centerpiece of which was the fact that San Diego's median home price has already fallen farther than it did during the entirety of the early-1990s housing bust.

The news is not quite so grim just yet, however. Kelly Bennet performed the same comparison using the Case-Shiller Home Price Index and found that according to that measure, prices have not yet fallen as much as they did in the 1990s. The median has fallen 15 percent so far, compared to 12 percent during the 1990s downturn.The HPI, on the other hand, has fallen just 11 percent during this bust compared to over 17 percent in the last one.

As Kelly points out, the one problem with this comparison is that the latest median figure describes November's prices, whereas the HPI is only current through September.


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Submitted by Bugs on December 19, 2007 - 9:39am.

I'm more inclined to agree with the HPI analysis because their -17% median for the last bust is more consistent with what I saw back then and their -11% median seems more consistent with what I'm seeing now. I know of a lot of examples of larger losses now, but the different market segments are not all moving in lock-step.

I'm sure one of our resident trolls will come along presently and tell us that the declines are over because they've already exceeded the losses from the 1990s. The problem I have with that argument is that its based on the idea that the current potential for loss is equal to that of the 1990s.

Just looking at the dollar amounts of the pricing during the 1990s ($174,500 peak vs. $154,000 bottom) should be ample illustration that each foreclosure we suffer now loses 400% more dollars than the losses we had last time. Sure, inflation has had its effect on the value of those dollars over the years, but not that much effect.

Submitted by greekfire on December 19, 2007 - 11:53pm.

Good analysis as usual, Rich. It is best to compare apples to apples, rather than apples to oranges. Perhaps I am missing something, but why don't the other leading economists display the losses in real terms?

Submitted by VanMorrisonFan on December 21, 2007 - 9:48am.

Is this really a fair comparison? I mean...does anyone think we are, say, half-way through this slump? It's unfair to compare being half-way through the slump with what the results were last time when we were all the way done with the slump. Kind of like comparing a half-time score with a game final.

Submitted by Fearful on January 1, 2008 - 3:33pm.

Looking at the HPI numbers, the mid-90's bottom is not at all apparent. However, if one adjusts the HPI numbers for CPI inflation, which is about 2.9% per year, the bottom is clearly apparent in early 1997 - about seven years from the prior peak.

With inflation, SD aggregate has already fallen 17%.

If one assumes constant inflation at the historical average, and the bottom of this cycle does not hit until 2012, and the bottom hits the same level as the 1997 bottom, nominal prices will decline 50% more.

This actually makes intuitive sense, given the declines that have already taken place, and the fact that we are only about two years into the down slope.

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