Thursday, May 07, 2009

The bottom of the housing market?

Doesn't look like we're there yet, according to the number crunchers at Zillow. As shown in the purple line in the graph below, housing prices are continuing to fall at a dramatic rate, and indeed are doing so at an ever faster rate, as depicted by the orange line (e.g. the second derivative is still negative):
At this point, a third of all mortgages are under water, which means that 1 in 5 of all homes in the U.S. are underwater. If you look at housing prices relative to headline inflation over the last thirty years, we're still way overvalued:
Now think about what this means for the holders of all the securities backed by these mortgages (e.g. the banks)... then think of what that means for the real economy.

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