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Are Prices Really Declining?
By HousingWatcher Tue, 21 Jun 2011, 8:03am
So even though the Case SHiller keeps showing price declines, I keep hearing from other sources like CoreLogic that if you EXCLUDE distressed sales prices are either flat or increasing. So are prices still declining or is it just a mirage?
My response would be that it's no surprise if organic sales are relatively flat. In a typical housing bust, there is a sharp initial drop, and then the housing market is largely flat for a number of years until all the distressed houses are out of the system. This is because housing is illiquid, and housing prices are sticky, so it takes time for prices to catch up with reality. When housing is flat for a number of years, incomes usually rise to catch up so that housing is net-net more affordable because inflation has eaten away at the asset value a bit.
What's different in this housing boom is the sheer amount of government subsidies given to prop up housing (super-conforming limit, FHA, HAMP, etc.), so it may not completely follow the normal pattern.
Gosh, I hope home prices will stay flat or stickily trending down in the next 3 to 5 years (no sarcasm).
It has happened before -- here is the data for Los Angeles in the 1990s. Look at 1994-1997.
Did anyone check out the Corelogic numbers:
http://www.corelogic.com/uploadedFiles/Pages/About_Us/ResearchTrends/CoreLogic%20HPI%20Monthly%20Marketing%20Data%20April%202011WEB%281%29.pdf
One thing that's interesting is that they include numbers both including "distressed housing" and excluding "distressed housing." For the Bay Area, it looks like organic sales are largely flat for the last year or so, which is not unexpected in a housing bubble, whereas distressed sales have been more volatile -- sometimes they push the overall number up, and sometimes they push the overall number down. This isn't meant to be a post about the Bay Area specifically, although I watch the Bay Area most closely, so that's why I commented -- feel free to discuss any MSA.
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