Following yesterday’s Case-Shiller Home Prices report, which showed m/o/m gains but further y/o/y declines, many analysts were out once again touting the bottom in housing (e.g. House Prices: From "bold call" to consensus in four months). Despite the pervasive optimism, I remain in the camp that believes these calls will continue to be proven wrong, as they have been each of the past couple years. Steve Keen in a Correction to “What House Price Falls Really Look Like” offers the following chart on real US house prices over time:
Although prices, even nominally, have fallen pretty dramatically in the past several years, real prices remain 15% above their long-term average. Anyone who has studied the history of bubbles will recognize that prices practically always fall below the long-term average before rebounding (otherwise the long-term average would be far higher).
Based on estimates by the Cleveland Fed, expected inflation for the next 10 years is only 1.38%.
If such low values of inflation are realized, to simply reach the long-term real price average, nominal home prices must either stagnate for another decade or continue to drop for the next several years. While nominal housing prices may be bottoming, in my view, a real recovery still remains years away.
Dr. Housing Bubble - What if housing doesn't recover for another decade?
Don't Rush to Buy a Home!
Buy a House for the Experience, Not the Potential Gain