Update on falling home prices

In inflation-adjusted terms, home prices in 20 key markets in November fell about 29% from their peak in 2006, according to the Case-Shiller Composite-20 Index. I've discussed this before, noting that the index overstates the current level of prices by quite a bit because of reporting lags and the way it is calculated. Adjusting for this, I would guesstimate that housing prices today are down about 37% from their highs in real terms. That would put them back to levels last seen in mid-2001, and that would imply that most or all of the housing price "bubble" has been reversed.

Anecdotally, the house next to the one my daughter rents in Claremont was put on the market last Friday, and sold before the Open House on Sunday. The house has a little over 1500 sq. ft., with 3 bedrooms and 2 baths. They were asking $500,000 and that's presumably what it sold for. Zillow.com estimated the house was worth only $400,000. Prices in many markets have fallen enough to stimulate real buying interest. Again, I think we are getting close to the bottom of the housing market, and that is very good news indeed.