Housing Prices: How Far to Go Until the Bottom?

I'll just take the market's view here; using the futures prices from the CME (via ino.com), prices will fall about another 16% from June (or 17% in log terms):

Figure 1: Log Case-Shiller 10 city price index, (red), CME futures prices (red squares), and CPI adjusted SP Case-Shiller 10 city price index (dark blue). CPI-All rescaled to 100 2008M01-08M06. NBER defined recessions shaded gray. Dashed line indicates start of plotted futures data. Source: Standard and Poors' [xls], ino.com - real estate (accessed 21 Sep 2008), St. Louis FRED II, NBER, and author's calculations.

The latest reading from ino.com for the Case Shiller US composite futures indicates a nominal bottom in May 2010, with a reading of 151.6 (or a bottom of of 151.4 in May 2011 if you want to nitpick.

This would represent about a 40% decline (in log terms) in housing prices relative to the peak in June 2006, not too far away from the 40% (in log terms) decline I predicted in March of this year for 2009Q4, based upon the relationship between the relationship between the OFHEO and the Case-Shiller indices, and the WSJ survey of forecasts for declines in the OFHEO index up to 2009Q4.

The foregoing suggests that the market's expectations are indeed for the assets underlying the RMBS to begin rising in nominal terms around mid-2010...or mid 2011. This perspective is not new, but it's interesting to see how relatively unchanged it's been since three months ago.

Comments

[NYM Arts:]

Absolutely ALL of the People invovled in the Scamming of Homebuyers MUST be put into labor camps, where they will be Worked Until their Nautural Deaths.
ALL of their Worldly ILL - Gotten Possessions MUST be "Liberated" Back to the American People. Amen

2008 Sep 23 08:15 AM

[San Diego L...:]

I agree. But, in bubble markets like Las Vegas, San Diego etc. the drop will be MUCH larger. As an example, San Diego median home price in August was $350,00, a 26.3% drop from a year ago.
For a 'real' picture of the San Diego CA real estate bubble market, visit:
www.brokerforyou.com/b.../

2008 Sep 23 09:48 AM

[John Lounsbury:]

An interesting question: How does the 40% drop compare to the historical relationship between income and housing prices?

2008 Sep 23 11:00 AM

[skepticalfa...:]

Have you tracked the accuracy of previous futures indications, to know if the futures are good predictors?

2008 Sep 23 01:24 PM

[ckeegan@cda...:]

Since many of us don't live in one of the markets analyzed by the Case-Shiller index, how should we intrepret the data? Also, what about markets which have appreciated during the decline of national averages, and continue to appreciate even as recently as August 2008? National real estate averages are useless, since there is no such thing as a national real estate market. Once the media figures that out, maybe those buyers currently on the fence, will get off.

2008 Sep 23 02:03 PM