Today, in the Calculated Risk Real Estate Newsletter: What will Happen with House Prices?
Excerpt: Now let’s look at the year-over-year change for the same period in real terms (inflation adjusted using CPI-less shelter).
Note that in real terms, house prices declined during the stall periods in 1982 and 1991. In the early ‘80s, real prices declined 11% from the peak, even though nominal prices only declined slightly. Homeowners are only concerned with nominal prices, so they didn’t notice the real price decline.
During the housing bust, real prices declined 35% compared to a 26% decline in nominal prices (this was a low inflation period).
The data seems to argue for the slow house price growth scenario, but my view is the most likely scenario is house prices will stall in nominal terms and decline in real terms. I’ve been looking at the 1978 to 1982 period for lessons, and that would suggest a stall in house prices (hopefully we avoid a recession).
Unfortunately, I don’t have the existing home inventory data for that period. However, my guess is the slow growth scenario would suggest inventory in the 4 to 5 months range, and the stall scenario would be close to 6 months of inventory. For the bust scenario, my guess is we’d see existing home inventory at 7+ months.