Sunday, September 6, 2009

Do You Realize How Bad the Housing Bubble Was?

A survey of housing prices shows that housing prices peaked nationally in 2006 and have dropped since. Optimists can see a leveling off in the last couple months.  [This data is from S&P and is called the Price-Shiller index.]

Pessimists can say that we have a long way until we get to the "so-called" normal prices near an index value of 100 to 110. Housing prices should be based on some fraction of the average household income in the area. Anything more than that, and it is doomed to crash. That or poor people leave and rich people move in.

Living in metro Detroit, I am happy to see that Detroit prices were never as inflated as other cities, but they are quite low now -- down 45% from 2006. I bought in 2007, and prices were trending down a little at that time. Still nothing to be happy about.

In Phoenix and Los Angeles prices were triple of the base line price in 2000. People that bought at the top could easily be bankrupt. On the other hand, New York, Cleveland and Detroit had modest price run-ups, but prices have still declined since the recession.

Click here to see my previous posts on housing prices. 

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