NCPA - National Center for Policy Analysis

There Is No Housing Price Stabilization

September 1, 2011

A headline from August 31: "More Evidence That Housing Has Stabilized."  This headline is from August 31, 2010.  Last year at this time, the Case-Shiller numbers came out and showed positive numbers for housing values and some argued we had reached the bottom.  Even the Wall Street Journal ran a piece saying, "Home prices appear to be stabilizing..."  Unfortunately, nothing was further from the truth, says Anthony Randazzo, director of economic research at the Reason Foundation.

A year later, we have a similar Case-Shiller report and are seeing similar talk about the stabilization of housing prices, on news that housing prices gained 1.1 percent from May to June 2011.  The problem is that these sources are citing non-seasonally adjusted housing value numbers.

  • Non-seasonally can a good metric to see what is happening in the housing market in real time.
  • However, it is not a good metric for gauging the overall trend of the housing market -- at least going month to month.
  • The reason is that we always see movement like this in the spring.

A much better predictive trend is the year-over-year measurement.  Looking at the data from a year ago, we see not a 1.1 percent increase as from May to June, but a 4.7 percent decline from June 2010 to June 2011.

We all want to see the housing market recover, but we are going to have to accept a redefinition of what a stable and healthy housing market looks like.  We're still in the housing bubble and need prices to decline further before there will be sustained recovery.  And we're going to have to accept that housing is more a store of value (like a good savings account) than a great investment tool with high return on investment, says Randazzo.

Source: Anthony Randazzo, "There Is No Housing Price Stabilization," Reason Foundation, August 30, 2011.

For text:


Browse more articles on Economic Issues