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House Price Declines: How Long for Real Prices to Recover?


by Calculated Risk on 7/04/2022 01:39:00 PM

Today, in the Calculated Risk Real Estate Newsletter: House Price Declines: How Long for Real Prices to Recover?


Housing economist Tom Lawler sent me some old FHFA research from 2009: A Brief Examination of Previous House Price Declines. … A conclusion from the research:

First, house price downturns have tended to be long. The median time required to return to prior peak prices was 10 1/2 to 20 years. Second, it tends to take longer for prices to rise from the trough to their former peak than it takes prices to decline from peak to trough. While the difference is small for Census Divisions and states, FHFA’s Metropolitan Statistical Area and Division (MSA) indexes suggest that the time from peak to trough tends to be about 3 3/4 years, whereas the median recovery period (from trough to prior peak) was 6 2/3 years.
emphasis added

… Here is a similar look at national prices using the real Case-Shiller index (adjusted for inflation).

The real return following the ’79 peak was 6.5 years. It took 11 years for real prices to reach the previous peak following the peak in ’89.

And it took 14.5 years to return to the real peak reached during the housing bubble.

This is a little premature, but following a downturn, it typically takes a long time for prices to return to the previous real price peak. Of course, homeowners think in nominal terms, and if prices just “stall”, they usually don’t notice the inflation adjusted price decline.

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