Tuesday, July 29, 2008

Case-Shiller Tiered Price Indices

by Calculated Risk on 7/29/2008 03:53:00 PM

As part of the monthly house price release, Case-Shiller presents tiered price indices for 20 major cities.

The following graphs are for Los Angeles using both nominal and real (inflation adjusted) prices.

Case-Shiller Tiered House Price Los Angeles Click on graph for larger image in new window.

The first graph shows the nominal Case-Shiller prices for homes in Los Angeles.

The low price range is less than $401,614. Prices in this range have fallen 36.5% from the peak.

The mid-range is $401,614 to $606,600. Prices have fallen 29.8%.

The high price range is above $606,600. Prices in this range have fallen 20.0% from the peak.

Case-Shiller Tiered House Price Los AngelesThe second graph shows the same data in real terms (inflation adjusted using CPI less shelter).

Looking at the data in real terms probably provides a better idea of how much further prices will fall. If prices fall to the January 2000 level in real terms (shown as 100 on the graph), then the high end has fallen about half way from the peak, and the low end about 2/3 of the way from the peak in Los Angeles.

I've noted this before: In a number of previous housing busts, real prices declined for 5 to 7 years before finally hitting bottom. That is my expectation for the duration of the price declines in the bubble areas. The bottom for real prices will probably be in the 2010 to 2012 period. The less bubbly areas will probably bottom sooner.

If this bust follows the historical pattern, we will continue to see real price declines for several more years, and the rate of decline will probably slow (imagine somewhat of a bell curve on those graphs).