I have mentioned in the past housing prices might be near the bottom. Unfortunately the recent data didn’t do much to prove me right.
First, the new Case-Shiller data shows the housing indices have once again hit new lows, although the year over year drop is decelerating or at the very least flattening. We are in a similar place to where we were in 2003. While the trend in prices is certainly downward, it isn’t nearly as steep as it was.
On a real basis, the graphs are worse. We are at 2000 levels in prices, and further the graph shows a fairly steep decent in prices that appears further away from a bottoming. You can essentially pay the same amount for a house on an inflation adjusted basis as you did 12 years ago.
There is still positive news though:
- Price-to-rent ratio is way way down. Meaning the substitute to owning is no longer a much cheaper alternative. Still could fall some, especially if rents start to decline as homes become more affordable.
- As I look at the trend lines, on a nominal and real basis prices are right at or slightly above the long-term trend line.
So while the latest news wasn’t so great, I am sticking with my previous statement – “the worst in housing appears to be over or close to being over.”
