Home Prices Go Up...And Down

A discussion of historical home price dips including frequency, depth, and duration illustrated with a number of new related charts.

It was common misconception before 2007 that, while home prices might fall occasionally in some localized areas, home prices always had and always would appreciate at a U.S. national level. One factor that drove and still drives this misconception is that over time, homes, on average, have gotten bigger and nicer. While this factor means that people on average, are paying more and more to buy homes, it doesn't necessarily mean that a specific home will appreciate in value.

In part, to address this issue, economists Karl Case and Robert Shiller came up with a national house price index based on repeat sales of single family homes. This index, as shown in the next chart, represents U.S. home prices all the way back to 1900.

The previous chart shows that even when considering same home sales, there have been very few times when nominal home prices have fallen on a national basis. However, once prices are adjusted for inflation, as in the next chart, there are many time windows in which housing prices fell significantly on a national basis.

The next chart is the same as the previous chart except that major home price peaks have been marked with horizontal lines.

The following table lists the details of the 7 major home price peaks between 1900 and 2020. The year and value at each peak and trough is listed. (The troughs are the lowest points between peaks.) The number of years and size of the loss from the peak to the trough is listed. Also, the number of years before home prices again reached the value at the peak is listed.

The maximum loss from peak-to-trough was ~40%, and the average was ~20%. The longest duration from peak-to-trough was 20 years, and the average was over 8 years. The longest time to recover the peak price was 40 years, and the average was 16 years. As of the time of this writing in 2020, it's been 14 years since the last peak, and home prices have not yet recovered to the 2006 highs.

Therefore, although real (inflation adjusted) home prices in the U.S. have trended upward over the last century or so, they have also fallen roughly every couple decades by significant amounts and for significant periods of time.