Sunday, April 24, 2011

We Could Be Near a Housing Bottom

John Lounsbury submits:

Home prices recently marked seven consecutive months of decline. It is fair to ask some questions:

  1. How much further will prices fall?
  2. What should be the "normal" median price for homes today?

There are a number of different ways to look at these questions and we will try to cover some of those is the following.

On an inflation adjusted basis, home prices have returned to the range experienced during the 1980s and 1990s. This is seen in the following graph from Chart of the Day:

Is this the correct reference for home prices? Notice that before 1977 home prices were below the range for the years that followed.

Another reference for home prices is in relation to income levels (click to enlarge images):

Based on median income it appears that home prices may be above the levels of the 1980s and 1990s. With current income, home prices may need


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