Report: Different Take on Home Pricesby Tim Manni
One of the major hurdles that has (so far) stymied a turnaround in the housing market has been falling home prices. Yet, one report documents something partially to the contrary.
The 2008-09 Remodeling Cost vs. Value Report says, “instances of steep home-value depreciation occurring in some parts of the country, particularly those with widespread foreclosures, have led to conclusions about the weakening of the overall existing home market that, while certainly not unfounded, could be exaggerated.” [emphasis added]
The report found that the “average cost-value ratio across all projects” dropped 8.02% in 2007, while declining by only 3.86% in 2008. “Even with a mild (2.67%) increase in 2007 construction costs, it seems likely that if house values were plummeting as far and as fast as media reports would have us believe, the Cost vs. Value results [in 2008] should have been much worse.” [emphasis added]
The National Bureau of Economic Research (NBER) concurs. “Even under extremely pessimistic scenarios for foreclosure shocks, average U.S. house prices, as measured by the comprehensive OFHEO house price index (which we argue is the most reliable and useful measure of house prices to use for our purposes), likely would decline only slightly or remain essentially flat in response to foreclosures like those predicted for the 2008-2009 period. This suggests that home prices are quite sticky, and that fears of a major fall in house prices, with all of its attendant negative macroeconomic consequences, typically are not warranted even in extreme foreclosure circumstances.”
Unlike many media sources, the cost-value report doesn’t base their home price values on the popular Case-Schiller Index, which they claim “omits 13 states and has incomplete coverage of 29 states.”
Maybe there’s something to this after all?