Has the Housing Price Bubble Deflated?

Interesting set of charts from a presentation by Columbia's real estate guru Chris Mayer showing house prices relative to 50-year trends:

It looks like there is a bit of mean-reversion going on here, but two factors make Mayer think that there could be an overshoot: Excess housing supply and the high spread between 10-year Treasuries and 30-year mortgage rates --2.52% now versus 1.6% historical.

As Mayer and Hubbard said in their WSJ op-ed Wednesday, the solution they like is the one proposed by the Treasury: lower mortgage rates to spur demand. But not everyone thinks that's a good idea. (Mayer and Hubbard's paper.)

Comments

[Steven Hansen:]

to believe this you have to ignore baby boomer retirement. there is nothing quantitative going on in the housing market - it is change in the social fabric.

2008 Dec 19 02:51 AM

[who:]

More like lowering mortgage rates to spur risk taking! With a bleak outlook who will venture into real estate? People with money are waiting for lower prices and people with uncertainty wouldn't take a chance.

2008 Dec 19 02:59 AM

[Smalltownba...:]

The answer to your headline question is in general "No". In certain markets the answer may be yes but nationally there is still excess air in that baby due to the excess supply and the demand which continues to fall. If you listen to academics for economic solutions you will get historical perspectives. Our current situation is somewhat unique in that it doesn't compare well directly with previous bubbles in real estate. That bubble will deflate fully when the foreclosure levels return to more normal levels and the affordability returns to normal based on real wages.

2008 Dec 19 08:54 AM

[nobull:]

i think people should relax and forget about housing for a while. Its not going anywhere. There's plenty of time before it comes anywhere close to being viable.

2008 Dec 19 12:33 PM

[double beta:]

People get distracted quickly by false horizons. Trendline up, double down; trendline down, pull the chips off the table.

There are alot of baby boomers and baby boomer accounts that have to realize a return on their investments inorder to even consider retirement. We have seized credit markets which dropped the velocity of money, once leverage re-enters the picture we will have a much bigger pool to multiply through the market thanks to our Fed's abilty to create dollars.

Like tech in 2001, we will be looking back at some 'shoulda-woulda' values 48-mos from now in residential, neverminding the inflation hedge. I am bearish for the next year on commercial, especially unanchored B & C retail and off market office.

2008 Dec 19 01:44 PM