Return to 2003

Earlier this week we examined how much home prices have fallen in percentage terms. Let’s now look at things a different way: how far have prices fallen in terms of time? In other words, how long ago was it that prices were last at their current levels?

The accompanying chart attempts to answer this question using the three tiers of the Case-Shiller home price index in addition to the overall index for San Diego. To find the appropriate months, I just took the March value of each index (the most recent available, unfortunately) and noted what prior month was closest to the March figure.

The low tier has regressed the furthest, you will be unsurprised to learn. As of March, the Case-Shiller low tier index had fallen to a level last seen in August 2003 — over four and a half years prior. The middle tier index had fallen to its October 2003 level. The resilient high tier was still firmly in 2004 territory, at least, back to its April 2004 value.

The aggregate index was closest to the level last seen in January 2004. It was actually slightly lower than the January 2004 value, so in a manner of speaking you can say that San Diego is back to 2003 pricing overall.

In reality, the results are in all likelihood worse than what you see above due to the time lag involved in the Case-Shiller index (used here nonetheless because it is by far the most accurate home price index). To begin with, the index lags by two months — the March figures were just released earlier this week. On top of that, the index is calculated based on the prior three months’ worth of home sales. For example, the March index was based on sales that closed in January and February as well as March. Assuming a consistent trend, then, March’s value is more indicative of February pricing than of March pricing.

These facts lead the above chart to be overly conservative on both sides of the calculation. First, a match to the October 2003 Case-Shiller index value, for example, actually implies a match to September 2003 price levels. Second, the March 2008 index value represents February prices, and here we are nearly in June. (The evidence suggests that home prices have continued to decline since February.)

Sorry, I had to throw those last two paragraphs in for the nerds. The point is that as far back as prices appear to have reverted in the above chart, they’ve very likely reverted even a little farther than that.

When inflation is taken into consideration, “real” home values have regressed farther back still. But that is the subject for a followup chart — check back on Monday (or maybe Tuesday) for that.

— RICH TOSCANO