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Did Home Prices Hit a Lifetime Peak?

Posted by: Chris Palmeri on December 12, 2008

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.

Reader Comments


December 13, 2008 3:24 AM

For the home speculators who are still clinging to that last strand of hope that home prices will stabilize, get ready for a massacre in 2009. In 2009, those who live by home speculation will die by it. With the collapse of the auto business, more banking and finance failures, and disappointing X-mas retail sales, there will be more unemployment in the service sector of the economy in 2009 leading to more foreclosures just as the next round of ARM re-sets. Several States are insolvent and just like California are just one step from declaring bankruptcy unless new taxes are levied. But levying new taxes during this economic crisis will cause more people to pull back their spending purse and thereby causing more business to fail.
Leading the nation in this downward spiral to self-destruction is decadent California, the home of real estate speculation and mortgage scam. And yes, America, there is a God or Karma in this universe, and California is the whipping-boy.

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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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