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Biggest decline since the Depression. We think.

Posted by: Peter Coy on October 11, 2007

Is this the biggest decline in housing prices since the Great Depression? People have been asserting it so often, and with such authority, that I assumed it must be a proven fact. Just in case, though, I looked into it yesterday. I was surprised to find that there’s no hard numerical evidence for the claim. The best I can say after poking around is that it’s probably true. In fact, it’s very likely true. But I can’t say that it’s true beyond the shadow of a doubt.

Follow me as I try to confirm this well-known “fact.”

First stop was the National Association of Realtors, which has been cited in some news stories as the source of the not-since-the-Depression statement. Nope, not us, said spokesman Walter Molony. Its data goes back only to 1968.

OK, then what about the Census Bureau? The oldest annual data series I could find from Census goes back to 1963. Census does have a once-a-decade series that clearly shows a decline from 1930 to 1940, roughly the period of the Depression. There are no decadal declines since, but you can’t tell from this series whether there might have been a one-year decline in some decade.

Federal Reserve Chairman Ben Bernanke seemed like a pretty authoritative source. He said in 1995 that “we’ve never had a decline in housing prices on a nationwide basis.” But that quote turns out to be an offhand remark during a television appearance, and it was before he became Fed chairman and had to speak ultra-cautiously. (And it couldn’t have been true, since we know that prices did decline in the 1930s.)

For a minute I thought I had proof: an economist from the Federal Reserve Bank of St. Louis wrote last year that “the United States has not experienced a large, nationwide decline in nominal house prices since the Great Depression of the 1930s.” I emailed him for his sources. Oops. He said he couldn’t remember where he got that stat, though he believed it to be true. (The paper was on another topic, regional busts.)

Robert Shiller, the real estate numbers guru from Yale, has some historical data on his website, but it’s not national, it doesn’t go back to the Depression, and Shiller himself says “these data are somewhat outdated, and of interest only to researchers.”

Without hard data, I’m left with something Walter Molony of the National Association of Realtors told me. He said the trade group asked some members who were “real oldtimers” if they knew of any annual housing price drops from their younger days, and they didn’t.

So that’s it. Unless something authoritative emerges, this widely quoted statistic is hinging on the memories of “real oldtimers” who used to sell houses back in the 1940s and 1950s. Is this a great country or what?

Reader Comments

Jim D

October 11, 2007 3:01 PM

Nice work.

One note: Robert Shiller has claimed to have housing data going back well past the Great Depression, and that compelling chart that I'm sure you've seen was based on that (though the chart is inflation adjusted, so it's impossible to judge nominal prices from it). If you can talk with him directly, he may be able to give you the answer you seek.


October 11, 2007 4:03 PM

Brilliant. This is a Freakonomics-type analysis, the numbers behind the numbers. I love it. You're probably the first to check this out.


October 11, 2007 5:46 PM

Here's someone who is also claiming that this is "Worst Real Estate Crisis Since Great Depression, Reports Housing Predictor" His name is Mike Colpitts and says he is the Editor of Housing Predictor.

Where do all these 8 balls come from? These people are hysteria and fear mongers who plan to profit on irrational thinking.

Brian R.

October 11, 2007 9:56 PM

"Is this the biggest decline in housing prices since the Great Depression?" The question means something only if we put it into context. And very few people, in the media or otherwise, place the question in the proper context. If during a given year prices were to decrease by, say 10 percent, would that fact alone constitute a cratering of the market? It depends. If during the 3 to 4 years immediately preceding the price drop, prices had increased by a total of, say, 80 percent, then the large majority of homeowners would still have a huge amount of equity. If, instead, during those 3 to 4 years the market was stagnant, neither increasing nor decreasing, then a drop of 10 percent in that following year would indeed be cause for alarm. Likewise, if during a given quarter the S & P 500 were to gain 20 percent, and then the following quarter lose 5 percent, should stockholders reach for the cyanide? In short, one must have a longer term perspective. Where do prices stand now relative to 2003? to 2004? With few exceptions, prices remain not merely a bit higher than they were in 2003 and 2004, but greatly higher. So Las Vegas has tanked, has it? Not compared to prices of several years ago, it hasn't. Check the prices in Miami, Los Angeles, San Francisco, Portland (Oregon), Dallas, Phoenix, New York, Chicago, D.C., Bend (Oregon), Seattle, Boise (Idaho), Salt Lake City, or nearly any other city. Excepting a handful of other cities, such as Detroit and Cleveland, homeowners continue to sit handsomely. (Of course, those homeowners who used their homes as ATM's sit a little less handsomely.) If today's prices were even close to where they were 3 to 4 years ago, buyers would joyfully jump off the fence. Therefore, even if for the sake of discussion the recent price decline were the biggest since the Great Depression, that in no way indicates that prices have become reasonable, much less a bargain. Witness the buyers camped on the fence.


October 12, 2007 8:12 AM

I remember in the early 80's the housing prices dropped and building slowed down because the interest rates were so high!


October 12, 2007 4:26 PM

you asked a realtor for data showing negative data? Realtors usually dont tell the truth!

Susan Milner

October 24, 2007 5:39 PM

Prices are way down here. That's for sure. Cape Coral hasn't been around for that long as a city to have hard facts available like that.

I can say that there was a huge decrease in values in the early 80s.

For instance, many people purchased vacant lots for upwards of $20,000 back in the late 70's here in Cape Coral.

They quickly decreased in value to nearly $1,000 in some areas. We didn't see the values begin to climb again until about 2001/2002.

They peaked in 2005 at nearly $100,000 & are now back to about $20,000 (for the least expensive/off water lots).

Many people still buy here & move here but the values are definitely down.

Making this an opportune time for buyers!

See Darren, a REALTOR® that tells the truth :)

Yours in Success,

Susan Milner, licensed broker-sales Associate
Sellstate Achievers Realty Network, Inc.


October 25, 2007 3:34 PM

Darren is right. You don't give much weight to what a real estate person says. Ditto to what someone in the Federal Reserve says. They all have turf to protect.

As of yet, in no way shape or form are we experiencing the biggest drop in real esate prices. AS OF YET. However, it's very likely in certain regions of the country. The first tremors of this massive earthquake have just hit. We're just maybe 20 seconds into this massive 9.9 three-minute earthquake.

Only fools didn't see the bubble, and housing prices inflated to outrageous levels. The price of the house really didn't matter that much--only the monthly payment seemed to be a major consideration when buying a house.

Southern California experienced a major price correction in the early '90s. We're talking at least 25% and even more than that in certain areas.

Why people risk buying homes in Florida or California is a mystery. As I write this, tens of homes in California are going up in smoke every hour. Good luck to these folks when they try to reach a settlement, because insurance companies most always win. Don't worry, they'll find some technicality in the homeowner's policy for not paying what they should be paying.


October 30, 2007 9:27 PM


I sold my house in Fort Lauderdale right before Hurricane Wilma spanked the area in 2005. I had been in the house 4 years and made about 150% profit when I sold.

Now I'm looking to buy in the Portland in winter of 2008, after prices have come down to less euphoric levels.

When it's cheaper to rent than to buy, and prices are on a decline, it makes zero sense to buy.

The days of the "fast flip" are long gone - party's over, kids.


December 24, 2007 1:24 AM

What I don't understand, is that Robert Shiller's housing price charts seem to show an increase in housing prices from 1930 to 1940 ... So was there even a decline in housing prices during the Great Depression?

Ken Cook

March 7, 2008 3:45 PM

It's getting worse. I'm hearing it more and more ... "since the depression" and "since the great depression". I am a firm believe (and heard MSNBC admit to it but do nothing further about it) that the media so fueled the housing bubble that it was virtually impossible for the industry to recover internally once the investors fled the market - not saying there weren't defaults but now you have people en mass walking away from their homes because the media gave the impression the sky has fallen and will never rise again.

The number one problem is lack of responsibility that should be laid squarely on the shoulders of the individual journalist authoring the report and the media outlet(s) who make them available to the public. If we were all still in college the journalism majors would still be the jokers and clowns who didn't feel bright enough to study economics but highly compelled to comment on the subject regardless.

Of course Peter Coy does not fit the apparent mold of the loser turned powerful with the authority of the word processor and the socialist editor. Or perhaps he is the loan positive disambiguation of the word "journalist".

Either way it is time to send a clear and accurate message to the media. Honestly I do believe congress should investigate claims made by reporters, journalists, anchors and publishers.

After all, if a bank is to be held accountable and culpable for his or her "crimes" in leading to the worst real estate market in recent history then the reporter who reports on the same subject MUST by righteousness be held to the same level of accountability for their statements, written or vocalized, which contain erroneous, false, libelous, and slanderous statements. Maybe the MBA, NAMB, and NAR should investigate where to start the law suits and which names and networks should appear at the top of the list ...

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BusinessWeek editors Chris Palmeri, Prashant Gopal and Peter Coy chronicle the highs and lows of the housing and mortgage markets on their Hot Property blog. In print and online, the Hot Property team first wrote about the potential downside of lenders pushing riskier, "option ARM" mortgages and the rise in mortgage fraud back in 2005—well ahead of many other media outlets. In 2008, Hot Property bloggers finished #1 in a ranking of the world's top 100 "most powerful property people" by the British real estate website Global edge. Hot Property was named among the 25 most influential real estate blogs of 2007 by Inman News.

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