How long will real prices recover?

on Estimated risk per 07/04/2022 13:39:00

Today in the Calculated Risk Real Estate newsletter: House prices are falling: how long does it take for real prices to recover?


Housing economist Tom Lawler sent me some old FHFA research from 2009: Brief overview of previous house price cuts. … Conclusion from the study:

First, house price declines have generally been long-lasting. The average time it took to return to previous peak prices ranged from 10½ to 20 years. Second, it usually takes longer for prices to rise from a trough to their former peak than it does to decline from a peak to a trough. While the difference is small for census counties and states, the FHFA Metropolitan Statistical Area and County (MSA) indices suggest that the peak-to-trough time is typically around 3¾ years, while the average recovery period (from the bottom to the previous peak) was 6⅔ years..
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Realtor inventory… Here is a similar look at national prices using the real Case-Schiller index (adjusted for inflation).

Real income after the peak of ’79 was 6.5 years. It took 11 years for real prices to reach the previous peak after the 1989 peak.

And it took 14.5 years to return to the real peak reached during the housing bubble.

This is a little premature, but after a downturn, it usually takes a long time for prices to return to the previous real price peak. Of course, homeowners think in nominal terms, and if prices just “stack”, they usually don’t notice inflation-adjusted price declines.