Tue, 1/31/12 10:53 AM – Housing Prices Still Dropping

The Case-Schiller Housing Index was released today for November 2011 and showed that home prices nationwide continue to fall. Nationally, they are now down 33% since 2003. In the Charlotte market they dropped 18% on average and are recently up slightly.

A long term chart (you know how much I like long-term charts) helps put this in perspective. Click on the chart to enlarge. Source: http://www.jparsons.net/housingbubble

Notice the perfectly straight red slanted line. That is a 0.50% per year increase, not counting general inflation. As you can see from 1970 to 1988 appreciation in home prices oscillated around that line through all sorts of markets, good and bad.

Now look at the straight blue line. That shows the increase in unadjusted housing prices. That does include inflation and so the rate is higher, around 5.25% per year. Still the picture is the same – housing prices got out of control in 2001 and peaked in 2008. Now they are back down to the long-term trendline.

In 1998-2008 home prices climbed at an increasingly rapid rate. Technicians call that “going parabolic.” As with nearly all charts, in the short-term that means opportunity; in the long term it means elevated risk. The steeper the climb, the more risk.

I think national housing prices will continue to fall for another couple years but at a much slower rate until prices are well below the long-term trendline. Charlotte may continue to be fairly flat. Yes, more houses are being built than in the last couple years but they are far off of a normal pace.

Housing stocks are up 50-100% in the last three months! Stay away, unless you are a very short-term trader with a high tolerance for risk. If you’re a real estate investor these are the best of times for buying homes, just as long as the tenants continue to pay the rent and don’t tear up the house.