In the aftermath of the deflated bubble, home prices in the United States have broken below their pre-bubble, baseline trend. According to the MacroMarkets Gap Gauge, an interactive tool for performing basic technical analysis of real estate prices, U.S. home values fell to almost 8% below their baseline trend level as of the end of Q1 2010. The Gap Gauge extrapolates the average rate of growth in the S&P/Case-Shiller Home Price Indices before 2000, the year when prices in many real estate markets began appreciating at unprecedented and unsustainable levels. The pre-bubble growth rates are used to create baseline home price trends from the year 2000 forward. The percentage difference between the current index level and its corresponding baseline level is the gap, a quantity that can be used for very simple relative value and “rich/cheap” analyses.
Gap Gauge users can over-ride the pre-bubble average annual growth rate computed by the model with their own assumptions. The MacroMarkets Gap Gauge also features market supply and demand indictors for each market, including month-over-month and year-over-year changes in MLS-listed, REO, and foreclosure inventories. The Gap Gauge is free, and available here.