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Are we too optimistic?

rose-colored-coolaidrose-colored-coolaid
edited October 2008 in Housing Bubble
Well, not Eula or Sniglet, but are the rest of us too optimistic about housing?

According to Marksman, who's I've found a little more accurate during the last year+ than most of the other commentators seems to think so.

http://articles.moneycentral.msn.com/Ba ... spx?page=2
The Case/Shiller price index, a measure of home prices going back to 1987, shows California home prices still at about twice where they were at the peak of the last big housing cycle back in 1990. So just to get back to the top of the last peak, prices would have to drop another 50%.

Interest rates at that time were substantially higher, in the range of 10%. If you take that into account and look not at sales prices but at the cost of paying mortgages, we're still in for a drop of an additional 30%.

That's if prices don't fall below the last peak and interest rates stay at 6.5% or less. In other words, it's a best-case scenario.

Comments

  • deejayohdeejayoh
    I dunno, 18 years is a long time. Rule of 72 would say double the last peak is only 4% appreciation per year. So knock that back to 2.5% and where do you end up?
  • rose-colored-coolaidrose-colored-coolaid
    I think Marksman's point was that we're still double the CS of the last peak, let alone the valley that followed it. Since we know that was a bubble inflated price, it doesn't seem unreasonable to argue that prices will recede back to at least that point or very close to it...at least in the CS numbers.

    Keep in mind that 30% off an already 40% discounted price produces only a 58% total drop, not a 70% overall decline.
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