Monday, September 05, 2005

Median Price Falls


This story points to the fact that the first prick of the real estate bubble might have already occurred. I have reproduced a graph from one of the links in the story - one of median new home price. This is consistent with what I had been expecting - in fact, compare the chart here with the one on my posting on July 29. Sure looks like a correction is in progress. Folks, if you own a home, aggressively pay down your loan ahead of schedule. The gains of real estate are because of leverage, but leverage works both ways, so don't be caught owing a lot more than your house is worth! (This is especially true for people who work in jobs that may require them to relocate, or who are in the early years of their career where they would be better off being flexible about relocating)

2 comments:

Anonymous said...

very interesting. has any of your literature predicted the length of the correction? can historical precedence shed some light?
-alex

Karthik Narayanaswamy said...

Well, you can look at the data in my latest post (Sept 6). The last 3 corrections have lasted 15, 35 and 25 months respectively, based on real values (i.e. inflation-adjusted in 2004 dollars). Based on that estimate, we could be in a period of correction for 1-3 years! I have not read anything on duration for prior crashes.