Distressed Sales are Simply Part of the Process of a Deflating Bubble

Print
Thursday, 31 March 2011 04:45

USA Today had a piece that reported that distressed house sales are likely to depress house prices for years to come. The piece never refers to the housing bubble. This is remarkable since it is impossible to understand the housing market without reference to the bubble.

At its peak, the bubble pushed house prices more than 70 percent above their long-term trend values. The fall in prices to date has brought prices closer to their long-term trend, but the market still has to fall another 15-20 percent to return to its trend level. Distress sales are part of this process, but the main point is that house prices are still well above the level that would be supported by the fundamentals of the market in large parts of the country.