And things are even worse than they look. In the deflationary 1930s, America's general price level was falling, so in real terms home prices declined much less than they did nominally. Today inflation is running at a brisk pace, so property prices have fallen by a staggering 18% in real terms over the past year. In nominal terms, the average home is now worth 16% less than at the peak in 2006, and the large overhang of unsold houses suggests that prices have further to fall. If so, this housing bust could well see a bigger cumulative fall in prices than the 26% real drop over the five years to 1933. Most people would call that a pretty destabilising contraction.Things are probably alot worse than they appear. We keep hearing the worse is over. But remember "it ain't over till it's over."
Wednesday, June 4, 2008
Worse than the Depression
You probably have seen this article other places but it needs to be documented over and over. This short article called House price are falling even faster than during the Great Depression in the Economist is really an eye-opener. The largest housing value drop during the Great Depression was 10.5% in 1932 - the first quarter year-over-year was 14.1% according to the S&P/Case Shiller Index. Here is the final paragraph -