It took only three years to wipe away six years of boomtime home-price gains

Posted by: Prashant Gopal on May 26, 2009

Home prices fell 19.1% in the first quarter compared to the previous year, the largest decline in the 21-year history of Standard & Poor’s Case-Shiller Home Price Index series.

Case-Shiller’s 20-city index for March saw an 18.7% decline, including a 6.1% drop in Minneapolis, the largest monthly decline for any metro area in the history of the indices.

Paul Dales, U.S. economist for Capital Economics in Toronto, pointed out the massive home price gains from 2000 to 2006 have now vanished. Home prices have fallen back to 2002 levels in nominal terms, according to Case Shiller. But they’ve returned to 2000 levels when inflation is accounted for.

“We’ve had 6 years of massive appreciation wiped out in 3 years of sharp declines,” Dales said.

Home sales are improving, a sign that a bottom could be near. But home prices are likely to continue to fall for some time. Some cities have already overshot pre-boom price levels. Detroit, for example, is already at 1995 levels, even before inflation is accounted for.

Reader Comments

torpeau

May 26, 2009 2:25 PM

Yep, it was a bubble. Prices got unrealistically high much too quickly. Smarter lending practices would have prevented.

Brett

May 26, 2009 2:43 PM

"Home sales are improving, a sign that a bottom could be near. But home prices are likely to continue to fall for some time."

What is that supposed to mean? How can you see signs of a bottom if prices are likely to continue to fall for some time?!? When prices stop falling, that is the bottom!

BCR

May 26, 2009 3:10 PM

Over the last 10 years, look at the rise in average home prices compared to the average income level of a homeowner... Nowhere near equal. When a homeowner can't refinance his own home because he doesn't make enough to qualify for the loan, you have home prices that are out of control. They have a lot lower to go to get back to where they need to be. The bigger problem is still all of the loans that are underwater, and this is only making those worse.

JohnB

May 26, 2009 6:02 PM

I don't know how many times this bears repeating; but let's do it again anyway. The only reason for this big drop is because there was a big, unjustified, runup. There was NOTHING in the basic economy which supported such a rise in house prices. So, all thats happened, is that house prices have RESET TO THEIR HISTORICAL TREND LINE. This is a good thing. However, we also need to account for the fact that wages haven't increased much, nor at the pace they had been in the 80's and 90's. So once again, there should be a DOWNWARD trend to reflect that fact. If there's anyone who believes that house prices in California being 700k for an average wage of <70k i.e. 10x isn't totally unsupportable, please raise your hands. The only people crying over this are real-estate speculators, and boy, have they being crying and whining over this for over 2 years; when will it stop, and when will the media quit playing that broken record? For the average person who wants a home, somewhere safe for them and their family to live, this is about time.

wowlfie

May 26, 2009 8:13 PM

Home prices will continue to fall till they reach 1980's levels. They have a long way to go yet......foreclosures will continue to increase and as the 'bottoms up' owners give up and walk away feeding the frenzy for years and years more...and more bank bailouts, more layoffs, the recession is just getting started. It's not slowing down....it will go in fits and starts and skyrocket again by this fall as people realize America is in big big trouble and in danger of bankruptcy...

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About

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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