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The Mostly Good News on Housing

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Wednesday, 27 August 2014 07:02

Neil Irwin had a good post on the latest Case-Shiller house price data. he argued that the flat, or even modestly declining house prices are good news. This means that prices are now more or less following a normal pattern where they move pretty much in step with the economy.

This is right, with one important qualification. The Case-Shiller tiered price indexes show some worrying numbers in some cities for the bottom third of the housing market. Prices for the bottom tier fell by 0.7 percent in San Francisco in June. In Atlanta, the index showed a drop of 1.3 percent and in Minneapolis the decline was 4.0 percent. This may just be a monthly blip, but there is a real risk that in some areas this could be the beginning of another plunge in low-end house prices.

House prices for the bottom tier have been on a real roller coaster ride for some time. They were inflated in the bubble years by subprime loans and then plummeted when this source of lending collapsed. Then they were propped up by one of the most hare-brained policies of all-time, the first-time homebuyers tax credit. Predictably, prices in the bottom tier plummeted again when the credit ended. (Typical of the honesty people came to expect from Timothy Geithner, his book had a chart (p 304) which showed the uptick in house prices caused by the credit, but ends before the subsequent fall.) 

Price recovered again and began to rise rapidly through the first half of 2013. There was a real danger of a new bubble forming, but then Bernanke's famous taper talk took the wind out of the market. The concern now is that with investors leaving the market prices in the bottom tier in some cities will take another major hit. This is not likely to have much of an effect on the national economy but could be bad news for moderate income homeowners that bought in near a temporary peak.

Comments (2)Add Comment
What!?!?
written by JayR, August 27, 2014 9:18
"The...Case-Shiller home price index showed prices rose 8.1 percent in 20 major cities in the 12 months ended in June.." What is Dean smoking? We have a 8.1 percent increase in a market that should be tracking close to inflation and that is considered good? We are very much into bubble territory but the bubble is growing slightly slower. Hey the bubble isn't as large as last time soooo everything is ok? right? RIGHT??? We are also building apartments at a spectacular rate. There is even a construction crane shorter just about like last time there was a big bubble. Wow.
I welcome this
written by Dave, August 27, 2014 9:55
The worst thing would be for investors to start driving the market again. We want an organic housing market, not a financial market based upon housing.

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About Beat the Press

Dean Baker is co-director of the Center for Economic and Policy Research in Washington, D.C. He is the author of several books, his latest being The End of Loser Liberalism: Making Markets Progressive. Read more about Dean.

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