Safehaven | The Bell Curve of Doom? - The Case-Shiller Home Price Index

March 26, 2008

The Bell Curve of Doom? - The Case-Shiller Home Price Index
by Paul Kasriel

According to the Case-Shiller Composite 20 (metro areas) index, the price of an existing home peaked in July 2006. From the July 2006 peak through January 2008, the price of a representative home has fallen 12.5%. To put this in perspective, if someone had purchased an existing home in July 2006 for $1 million with a downpayment of $125 thousand (12.5% of the purchase price), that someone's equity in the house as of January 2008 would be approximately zero. Unless there was a radical reversal in the direction of home price changes in February, that July 2006 home purchaser was upside down - i.e., had negative equity in his or her home. The Case-Shiller home price index represents a bell curve of doom for recent home purchasers and home lenders.

Note: This commentary was inspired by conversations I have had with Michael Nicoletti, one of the foremost authorities of the current housing crisis and its negative implications for the financial system.

Paul L. Kasriel, Director of Economic Research
The Northern Trust Company
Economic Research Department
Positive Economic Commentary
"The economics of what is, rather than what you might like it to be."
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The information herein is based on sources which The Northern Trust Company believes to be reliable, but we cannot warrant its accuracy or completeness. Such information is subject to change and is not intended to influence your investment decisions.