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Did Home Prices Hit a Lifetime Peak?


The lead story in USA Today suggests we may never again see housing prices as high as they were two years ago. That may be an overstatement.

Here’s the newspaper’s logic:

“Existing homes grew in value by less than 0.5% per year, after adjusting for inflation, from 1950 to 2000. From 2000 to 2006, home prices rose at an average annualized rate of 8.2% above inflation and peaked with a 12.3% jump in 2005.” In other words, we could again see five decades with very modest real price appreciation.

And prices still may have a way to fall.

“So far, home values nationally have tumbled an average of 19% from their peak. As bad as that is, prices would need to fall as least 17% more to reach their traditional relationship to household income,” according to a USA TODAY analysis of home prices since 1950. “In that scenario, a $300,000 house in 2006 could be worth about $200,000 when real estate prices hit bottom.”

I’m not saying I support this dour thesis, just reporting it.


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