(photo courtesy of wikimedia) As I was searching for data for my article on Home buying vs renting, I came across several articles that are relevant to my interest, and possibly yours too. On August 4th, the Washington post did an article titled "Housing Collapse Ahead?" with the by line: Not According to the Data.
It cites several indices and examines why or why not they should be taken as truth. The first is the Office of Federal Housing Enterprise Oversight(OFHEO) which shows only small declines around the nation, and the Post defends the logic that goes into making the index with several valid points.
The second is Standard & Poor's/Case-Shiller housing price index which recorded a 14.1 percent decline from March 2007 to March 2008. The Post gives several reasons to dispel the notion that this index is representative of housing in general, and the goes on to state they've run their own simulations that show that the average decline will only be 5%.
While that may be somewhat reassuring to home owners, it also matches with historical trends in housing. Which brings me to the other article I found, which is a report made for the FDIC by FDIC researchers specifically on the bust and boom cycles that are present in housing markets. Interestingly, it was written in 2005 because of the run up in housing prices that had been observed in 2004.
The article, titled "U.S. Home Prices: Does Bust Always Follow Boom?", also uses the OFHEO index to compare trends in housing markets over past 30 years. To summarize their findings:
-Rarely does the nominal value of a housing market decline after a boom period.
-Home prices may continue to rise after a boom, but will not keep up with inflation. "The equivalent figure for real home prices was a modest 2 percent per year decline"
-Home prices will generally decline only when population in the region declines or stagnates.
Finally, the authors caution that the introduction of subprime and high leverage mortgages may make their data less applicable to the (then) current boom.
I wish I'd read this article at the time it came out. Not that I had any money to do anything with in 2005.
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