Tuesday, February 28, 2012
By these two measures, housing prices were still weakening in the fourth quarter of last year (these indicators lag reality by at least several months). In real terms, the Case Shiller home price index is down 40% from its early 2006 high. This has been a really ugly housing market, no question. But that's what happens when the government goes all out to promote home ownership—subsidizing mortgage interest, directing Fannie and Freddie to buy mortgages made to people who couldn't afford traditional financing—and the Fed keeps real interest rates very low for years: prices rise to unaffordable heights, too many homes get built. Prices and new construction have to fall in order to clear the market.
Are they getting ready to plunge to new, disastrous lows, or are we close to a bottom in real estate? I've been thinking we're close enough to a bottom that it makes more sense to look ahead to improvement than to worry about further declines, and I continue to feel that way.
Posted by Scott Grannis at 7:27 AM