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Oops. This isn't the first decline in home prices

Posted by: Peter Coy on November 13, 2007

I want to take back something I wrote on Oct. 11, when I tentatively sided with those who claim this is the first time since the Great Depression that home prices have fallen. You don’t have to look any farther than the website of sister company Standard & Poor’s to find a year when prices fell: 1991.

The Standard & Poor’s/Case-Shiller U.S. National Home Price Index averaged 75.6 for the four quarters of 1990 and 74.5 for the four quarters of 1991, an annual decline of 1.5%.

We’ll have to see how 2007 winds up by comparison. The national index was down 0.4% for the 12 months through June compared with one year earlier. So far 1991 is still ahead in terms of devastation.

1991 wasn’t the only down year since the Depression, either, according to a spreadsheet that Yale economist Robert Shiller, co-inventor of the S&P/Case-Shiller indexes, kindly sent me by email. According to his nominal home price index, prices fell annually in 1941, 1959, and 1964 as well.

So assuming Shiller is correct, I got it wrong in my blog post last month. In my defense, I did say “I can’t say that it’s true beyond the shadow of a doubt.” Also, Shiller’s website, which I had checked, doesn’t seem to have the spreadsheet he emailed me. As for not looking more closely at S&P’s own publicly available data—mea culpa.

It’s probably worth noting here that while nominal price declines are fairly rare, price declines after adjustment for inflation are common. (In other words, lots of times house prices are going up, but not as rapidly as the general price level, so they’re actually losing ground in real terms.)

Adjusted for inflation, national home prices bumped up and down without any sustained uptrend from the mid-1950s to the mid-1990s, according to Shiller’s data.

Yes, folks, that’s 40 years. So much for your plans to retire on the gains in the price of your home sweet home.



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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