Possibilities of a Double-Dip in Home Prices

Existing Single-Family Home Median Price

Concerns have arisen in recent months about the possibility of a double-dip in home prices. At present, this appears to be less likely for the California median price than the US median price. Here’s why…

California Market

The CA median fell by nearly 60 percent from peak to trough, hitting bottom over two years ago in February 2009 at $245,230. Although the median fell in February of this year to $271,320, it stood at $293,570 in April, nearly 20 percent above the February 2009 trough. The February 2011 median was probably the low for this year, given the seasonal behavior of home prices and likelihood that market fundamentals will improve somewhat as the general economy continues its slow recovery.

Double Dip Watch! - chartNational Market

By comparison, the US median price fell 32 percent from peak to trough–about half of the decline experienced by the California market–however, it only hit bottom this past February at $156,900. The national median rose to $163,200 in April, and should climb as the market moves through the peak season, but it remains precariously close to the February trough.

Whether prices experience a double-dip depends greatly on the pace of recovery in the economy. GDP is rising, but must grow more quickly to bring down the unemployment rate. Recent increases in gasoline and food prices have caused an inflation scare that put a damper on consumer behavior since early this year. Gasoline prices will likely abate in the coming months, but it remains to be seen whether consumers will feel more confident about the future.

All information is from the California Association of Realtors’ Market Snapshot report, viewable here.

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One Comment

  1. The way I see it we’re in the middle of a big deflationary struggle with underwater home owners and rising home inventories in need of liquidation, against the Federal Reserve’s loose monetary policies, and federal program interventions on behalf of banks and distressed home owners. One side is market reality that says we need to experience mass liquidations and price drops, the other is man’s attempt to circumvent that pain. I’m not sure which way the scales will tip, but time will tell!

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