2007 September 03 Monday
Different Indexes Show Housing Price Drops

Housing prices are dropping.

In the second quarter of 2007, home prices were 0.1 percent higher than in the first quarter, according to the house price index of the Office of Federal Housing Enterprise Oversight.

But this index doesn't include high-priced homes. And it includes price data from home refinancings based on appraisals rather than just new purchases. Gault says that Global Insight expects this index to fall more than 4 percent by 2009.

An alternative index, seen as more accurate by many economists, has been more volatile.

The Case-Shiller index released Tuesday by Standard & Poor's showed home prices down 3.2 percent in the second quarter from a year earlier. The National Association of Realtors said Monday that the median sale price in July was $228,900, down 0.6 percent from a year earlier.

Since none of these indexes adjusts for inflation they all understate the extent of the decline.

The Case-Shiller index is probably most accurate.

There's still a fundamental reason to expect housing cost inflation to resume in the long run: population growth. This is especially true on the coasts where a barrier (the ocean) prevents expansion in one direction.

It would take stagnation of the economy to cause housing prices to stop rising. The biggest factor I can see that would cause that is a deteriorating demographic situation where smarter people become a dwindling portion of the total population. Combine that with the continued decline in the ratio of workers to retirees and economic stagnation becomes a real possibility.

Another possible cause of economic stagnation: a plateau in world oil production followed by a decline as we pass the oil production peak. The extent of the disruption caused by peak oil will depend on when the peak comes. The later it comes the more technology we'll have available to ease the shift to substitutes.

Share |      By Randall Parker at 2007 September 03 09:28 PM  Economics Housing


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