Thursday, October 01, 2009

Inflation adjusted home prices (US)

This chart of US inflation-adjusted home prices caught my eye as I leafed through Investment Postcard's recent, "Words from the wise", roundup.

As you'll note from looking at the chart above, we are currently in the midst of a sharp correction from the near-parabolic highs reached during this decade's "housing bubble". From the peak in 2004 to the most recent low (just below $170,000), we see a decline of around 50 percent in the median home price.

If this were a stock chart, we might note that the most recent low also violated a line of long-term support (drawn in red) at the $170,000 price level. This is the level from which home prices "broke out" in an advance above their previous highs beginning in the mid-1990s.

Assuming this type of chart inference is applicable to real estate prices, can we expect median home prices to return to their previous "trading range" of $145,000-$170,000 in inflation adjusted terms?

In any case, I felt the chart provided an excellent (and long-overdue) update to one of our original posts on home prices: Robert Shiller's study of US housing price data. Enjoy the look back (to the uncertain days of the bubble top) and the current data, with its implications for what may lie ahead.

Related articles and posts:

1. Single family home prices (inflation adjusted) - Big Picture.

2. Parsing the recent housing data - Finance Trends.