Home Prices A Year Later – Who Was Right?

Almost a year ago, I responded to a question posted on the SanDiegoBlog web site.

What are your thoughts on the San Diego real estate market? Can we expect that prices will level (have they already?) or decline in 2007?

Instead of responding with emotion or even my own anecdotal story, I cited the Case-Schiller futures index. This index was created so that one day home buyers could buy insurance to hedge any price declines.

Latest CME (Case-Schiller) numbers project 6.08% decline in San Diego house prices by September 2007. For even numbers, if the median home in San Diego is $500,000, then a 6% decline equates to $30,000.

My 2 cents – wait to buy and monitor the CME numbers.

Another poster mocked my use of the Case-Schiller index as evidence.

No offense MAS but the only people who care about the CME numbers are Shiller and the people who invested in it.

Almost one year later, who was right? According to arecent story in the San Diego Union Tribune:

The overall median was down 2.9 percent from July and off 4.3 percent from August 2006.

The futures market predicted a 6.08% decline and San Diego got a 4.3% decline and we still have one month to go. Considering how lightly traded this index was in 2006, I’d say that is pretty darn accurate. This was at a time when 84% of homeowners expected their home to appreciate or stay the same in value.

The last thing I said in my reply was to monitor the CME numbers before buying. TFS Derivatives just released apretty report on Case-Schiller futures prices for several cities. One of the cities is San Diego and it is predicting declines for years to come.

Nov 2008: – 9.1%
Nov 2009: -15.1%
Nov 2010: -17.3%
Nov 2011: -19.1%

Looks brutal to me. This is why I rent. People who disagree with those numbers are free to locate a futures broker and put their money with their conviction. Since real estate is local, be sure to study inventory levels and the zip code breakdown each month as well.

Also read: Futures market expects 5% annual price drops

UPDATE: TFS Derivatives lists the 1 year decline in San Diego real estate at 7.8% (July 2006 vs July 2007).

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MAS

Critical MAS is the blog for Michael Allen Smith of Seattle, Washington. My interests include traditional food, fitness, economics, and web development.