The Case-Shiller Housing Index is the most accurate dataset of home prices, however, it is slow. The median home price, which is less accurate, comes out about 6 weeks before the Case-Shiller data.
Phoenix
The price decline per month has averaged 0.7% per month since September 2006. The decline from July to August, at 0.92%, is larger than trend but not the largest single month decline over that period which was in February 2007 (0.98%).
You can see in the graph below that the decline has been straight line so far, not accelerating nor decelerating. However, we know from already released median home price data that September will show a sharper price decline. It’s very likely to be above 1%. The “sub-prime meltdown” in August will be reflected in the September index.
2 responses so far ↓
1 Brian // Nov 1, 2007 at 10:54 am
I love this Case-Shiller data because it is constructed in a way that has been statistically tested for many years by statistical experts. This is Robert Shiller’s life work and he has a team of post-grad students at Yale to help him with the research and tabulation.
Shiller’s research goes back several hundred years (from European historic data, I believe Amsterdam) and the housing pricing phenomena apparently follows very repeatable patterns through the ages. His conclusions about average long term price appreciation for housing and reversion to the mean are pretty much iron-clad.
From his book “Irrational Exuberance 2″ (btw…he takes credit for suggesting that phrase regarding the stock market to Alan Greenspan during a lunch in 1996), Shiller demonstrates convincingly that the long term “real” appreciation of real estate is about 1%. This appreciation is most likely due to improving functionality of housing over time (bigger rooms, better plumbing and electrical systems, etc). Otherwise, all the apparent appreciation is due to inflation. Real estate as an investment is an absolute illusion. It is a store of wealth at best, though after maintenance, taxes, etc, it may not even be good at that. Our tax policy in this country, and highly levered (perhaps financially dangerous) mortgages are the only reason real estate is of any investment value at all.
Everyone interested in real estate should read this book to get some perspective.
This is probably heresy to your audience, John, but people need to look at their homes as a place to live, and not a nest egg for the future. They won’t get in over their heads the next time there is a boom (which won’t be for another 20 years at minimum).
People who are looking for an investment, should invest in liquid, proven profit vehicles. If real estate is part of the portfolio, it should past the test on current cash flow, and not on the hope (or prayer) of future appreciation.
2 Cbass // Nov 27, 2007 at 12:03 pm
Brian is good. No arguing that concise and well thought out response. It pretty much sums up Schiller’s theory on housing prices. I have to agree with this theory because if housing actually did appreciate faster than inflation people truly would be priced out forever.
Leave a Comment