(January 31, 2007) – The S&P/Case-Shiller Home Price Index, released this week, marking the 11th consecutive month of negative annual returns. The 10-CityComposite’s annual decline of 8.4% is a new record low. The previous largest decline on record was 6.3% recorded in April 1991.
The steepest declines over the past 12 months were in Miami (-15.1%), San Diego (-13.4%), Las Vegas (-13.2%), Detroit (-13.0%), Phoenix (-12.9%), and Tampa (-12.6%). Prices actually increased (a little) in Charlotte, Portland, and Seattle (which is terrific because my son John sells real estate in Seattle. Buy a big house from him!)
I like the Case-Shiller Index for a couple of reasons. First, Robert Shiller is a thoughtful and careful academic I have known for decades. Second, in constructing the index they do the painstaking work of actually matching pairs of sales transactions for the same house over time when calculating the index. Like all existing home price indices their numbers have no precise way of separating pure price appreciation from increases in value due to improvements, which may make their return numbers a little aggressive. But I find it to be a great help in thinking about the housing market.
But a little perspective will remind us the world is not ending. The table and chart above show that returns on residential property (as measured by the Case-Shiller Index) outperformed other asset classes by a wide margin over the past ten years. That will remain true after the price decline has run its course.