In a post about the good housing news today, Kevin Drum says:
It's not clear what caused this, since home prices are almost certainly going to keep falling another 20% or so. In fact, this might even be bad news in a way, since the faster we hit bottom and get back to trend growth, the faster we're likely to see the end of the recession.
I'd like to know what he is basing a further 20% decline on, I don't see it. If you look at a number of indicators, we are at, or very near a housing bottom.
Housing affordability as of December 2008 was at a historic high:
Keep in mind, this affordability metric was based on a median existing home sales price of $180k in December 2008. As of the data released today (for the month of February), the median existing home sales price was down another 8.3% to $165k.
Adding in the stimulus tax credit for buying a home in 2009, we can reduce that median price another $8k and then factor in interest rates at 5%, the lowest in decades. Housing affordability has never been higher.
Now looking at historical home prices, the median existing home sales price is already very close to the historical, inflation adjusted average of $150k:
If prices were to fall another 20% to $132k as Drum suggests, or $124k when adjusted for the tax credit, we would be at the same inflation adjusted median price as the early 80s (when mortgage rates were a whopping 18.5%).
Update: Kevin responds here and I follow up here.