Values Have Dropped Less than 25% of the Fall Required to Reach Trend Status 14 comments
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PRICE TRENDS / WAR OF THE WORLDS (Part 4): Property owners nationwide have lost only one dollar for every four dollars they can ultimately expect to lose on their home.
The good news according to the leading data series issued by the United States government is that prices have only fallen 6 percent. If you are a homeowner, you are wealthier than you knew. The bad news is you still have three dollars to lose for every one dollar which has already been lost.
The total projected fall from the Federal Housing Finance Agency (FHFA) “All Transactions Index”, which begins in 1975, shows a peak-to-trend fall of 27%. Since prices are 6% lower by this measure, prices must still fall an additional 23% from today for prices to revert to trend.
The assumption built into these estimates is that prices in the years 1975 to 1999 advanced at a typical rate. A trend line was generated to the present based upon that 25-year period. The chart depicts the divergence of the trend established from 1975 to 1999 and the actual prices recorded from 2000 to 2009.
The FHFA prediction of a total fall of 27% is far less than the total fall of between 49% to 60% predicted by Case-Shiller. Based upon the four data sets reviewed in the last few weeks (see summary below), we can estimate a total fall of between 27% to 60% from the bubble top to the long-term trend. The average of the four indexes projects a total fall of 41% from the bubble high to the trend bottom.
Looking ahead from today, the average of the four indexes predicts that property values will fall 26% from our current price levels.
Please click here to see charts for each of four data sets at “Property Price Index”.
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This article has 14 comments:
Plot the chart again using a log scale for prices, and everything will make more sense, and will, not surprisingly, coincide much better with reality.
i really question that data.
case shiller show a drop of 183 to 132 from 2007Q2 to 2009Q2. CS uses a pretty decent methodology . your data shows 6%???
this FHFA data, the home of the managers of fnm &fre? looks like they do a lot better managing fnm/fre than they do collecting data.
The current US strategy is clearly to drive up the inflation to avoid fall in asset prices, which threatens banks' survival.
On Nov 12 05:49 AM chris coonan wrote:
> assuming the world works on straight lines, which it doesn't...
On Nov 12 06:21 AM Dave Wrixon wrote:
> The basic problem with this analysis is that ignores the expansion
> of the money supply, increased future tax burderns and the depreciation
> of the dollar. Yes, there is something behind what you are saying,
> but what Americans have already lost has happened to a much greater
> extent that your realize. But does the housing market have further
> to drop, sure it does, the funny money being pumped in is not going
> to be enough to stall the Alt-A crisis that is looming, and resources
> are finite, whilst the problem the scale of the problem is difficult
> to define.
On Nov 12 06:33 AM Owen wrote:
> Asset values behave in a lognormal manner, not linear. Any long-term
> chart using linear rather than exponential extrapolation shows a
> basic misunderstanding of price behaviour.
>
> Plot the chart again using a log scale for prices, and everything
> will make more sense, and will, not surprisingly, coincide much better
> with reality.
On Nov 12 09:13 AM the gerald wrote:
> according to your chart and your data, housing prices have dropped
> a total of 6% in the past 2 years????
>
> i really question that data.
>
> case shiller show a drop of 183 to 132 from 2007Q2 to 2009Q2. CS
> uses a pretty decent methodology . your data shows 6%???
>
> this FHFA data, the home of the managers of fnm &fre? looks
> like they do a lot better managing fnm/fre than they do collecting
> data.
On Nov 12 03:03 PM dividend_growth wrote:
> Inflation is the key here.
>
> The current US strategy is clearly to drive up the inflation to avoid
> fall in asset prices, which threatens banks' survival.
The Fed can expand the monetary base all they want, but deflation is here to stay until banks lend that money and generate credit through the money multiplier (aka printing press). To make matters worse, that monetary expansion has mostly ended up in banking reserves (aka dead money).
The only form of credit not contracting at depression-level pace is residential real estate and that is ONLY because the Fed is buying MBS. Once that program ends, the next leg down begins for housing values and the next wave of recession to bailout will begin. There is no private market for mortgages right now and private insurers are struggling to survive as well.
On Nov 12 06:21 AM Dave Wrixon wrote:
> The basic problem with this analysis is that ignores the expansion
> of the money supply, increased future tax burderns and the depreciation
> of the dollar. Yes, there is something behind what you are saying,
> but what Americans have already lost has happened to a much greater
> extent that your realize. But does the housing market have further
> to drop, sure it does, the funny money being pumped in is not going
> to be enough to stall the Alt-A crisis that is looming, and resources
> are finite, whilst the problem the scale of the problem is difficult
> to define.
On Nov 12 11:32 PM HomeEconomics wrote:
> The basic problem with your analysis is that the "money supply" doesn't
> solely consist of M1 and M2. Look at Eurozone M3 for a better picture
> of what's happening to the monetary base in developed nations.<br/>
>
> The Fed can expand the monetary base all they want, but deflation
> is here to stay until banks lend that money and generate credit through
> the money multiplier (aka printing press). To make matters worse,
> that monetary expansion has mostly ended up in banking reserves (aka
> dead money).
>
> The only form of credit not contracting at depression-level pace
> is residential real estate and that is ONLY because the Fed is buying
> MBS. Once that program ends, the next leg down begins for housing
> values and the next wave of recession to bailout will begin. There
> is no private market for mortgages right now and private insurers
> are struggling to survive as well.
>
> On Nov 12 06:21 AM Dave Wrixon wrote:
On Nov 15 11:54 PM driftwood2 wrote:
> House prices have fallen by WAY more than 6%. This data is BS.