Real House Prices Will Probably Keep Falling

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by: Howard Richman

On December 29, S&P Case-Shiller published its October estimate of average house prices using sales and resales of the same houses to make their estimate. The latest data shows the continuing fall in real house prices since June 2010 shown in the graph below:

The latest data agrees with our prediction of how fast house prices would fall. Specifically, in the April 14, 2011 American Thinker (House Prices in Free Fall), my father, son and I wrote:

If current trends continue, real house prices (house prices after subtracting inflation) will likely lose about a quarter of their real value over the next 4 years.

At the time we made our prediction, the latest Case-Shiller data (10 city composite, seasonally adjusted) was the January 2011 data. Over the 9 months since we made that prediction, real house prices have declined by 4.7%. If extrapolated to a year, this would equal a 6.3% fall per year, which is on track toward our prediction of house prices losing about 25% in value over the next four years.

It is clear (as we predicted at the time) that the Bernanke-Obama attempts to stabilize house prices through massive interventions in the mortgage and house buying markets only caused a temporary rise in real house prices which lasted from June 2009 to June 2010. It was a huge waste of government resources. Governments should not fight wars against the laws of supply and demand.

Even more foolish was the Clinton-Gingrich mistake of ending the roll-over treatment of capital gains for home sales in 1997. This tax change encouraged the speculation which set off the house price bubble in 1998. The popping of that bubble has helped depress the American economy since 2006, and will likely continue to help depress the American economy for another three years.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.