eric haller

“flip this house” going to reruns indefinitely?

sorry, i got that line from a trader’s IRC channel that i hang out in during the day when the market is busy. cnn money published a piece yesterday in which dean baker opined that house prices, adjusted for inflation, will *never* recover their recent highs. while i agree that the real estate market will probably get worse, and then stagnate for a loooooong while, when articles this bearish start popping up i start thinking that maybe it is time to  think more seriously about buying. think, mind you, not act on the thought yet.

But Dean Baker, the co-director of the Center for Economic and Policy Research and a leading proponent of the theory that there has been a bubble in housing prices, says that he believes it could take five to seven years before prices get back to their highs on a nominal basis.

If prices are adjusted for inflation, he thinks that prices will never recover their recent highs.

“If you look at historical data, home prices have stayed pretty much flat in real terms, maybe being a few percentage points above inflation or income,” he said. “That’s why the run-up in prices the past eight years was so peculiar. And the run-up is what created the bubble.”

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2 responses to ““flip this house” going to reruns indefinitely?”

  1. Michael Avatar
    Michael

    Eric, do you think real estate prices have dropped significantly in the Bay Area? The data I have shows that prices have just stopped increasing but that maybe prices will eventually fall.

    Socketsite shows that single family home prices dropped by about 4% since last year and condo prices increased by about 2%. Given that residential real estate prices were growing at >20% per year for several years, a 4% decline doesn’t seem like the bursting bubble people were expecting.

    Of course, prices are declining pretty rapidly elsewhere in the country. The Boston residential real estate market has seen a >20% decline recently.

  2. eric Avatar
    eric

    that’s a good question michael. i read a lot about the real estate market, but i don’t consider myself an expert. that article on socketsite asks whether this is the buy-the-dip situation sidelined buyers have been waiting for, or whether this is the start of a longer process. my best guess would be the latter, based on the way housing cycles have unfolded in the past.

    one critical factor, in my opinion, will be whether the housing recession causes a downturn in the broader economy. the current situation is unusual in that prices are falling and sales slowing *before* a downturn in the economy at large.

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