Housing Prices Are Falling Again. We Have a Moral Obligation to Embrace The Trend.

Isolate recent values on the First American index of property values and a national fall is not difficult to anticipate.

Since I began in August to forecast a continuation of falling values, frequently I met with anger, disbelief, myopia. This week I wanted to take a closer look. So I pulled out one of the best number sets, and applied my crude math in exactly the same way I always do, but I did a close up on five years of data before and after the peak. The result is the chart you see below.

Rorschach has his own interpretation, but I see a fall of either nine percent (Z) or 19 percent (Y) if you go by crude trends (see Z & Y above). Either one is plausible. Values could also take off the other way and shoot up to the moon, but the chart is more a downer than an upper. Recently the trend is again down, although it would be almost impossible to learn this from media coverage. Values have fallen in five of the last six months by this index.

If values fall, it hurts the finances of current owners, but it makes housing cheaper. This is not an afterthought. Very few would deny that a competitive economy may need cheap houses to create affordable workers who can live well on lower wages. I tell you without question: We need cheap housing to improve our competitive advantage.


Everybody thinks rising home prices are good, but rising property prices may make many of us unnecessarily poorer by making it harder for future buyers and renters to pay the bills.

I wonder if the poor are hurt most by a policy which artificially supports housing prices? If true, then the Fed and the Treasury are taking dramatic action against the most vulnerable. The affordable housing people arguing in favor of foreclosure prevention are arguing against their own goals.

The crisis in Greece points to the problems which arise when there is too much debt. They are a country with negative equity. The back story on Greece is that national bankruptcy may be unavoidable. If they have too much national debt, they will not pay it back, even with a heroic bailout and radical cuts.

We have the same crisis here, but in housing and mortgage debt, and we have been lying about our own bankruptcy. Values bubbled irrationally in a pattern far worse than any of the last 120 years (see above). Massive unaffordable mortgage debt financed a flim-flam scheme.

A national fall in prices of 31% proves that the housing market was a lie. Yet mortgage balances are only two percent less than their peak. What makes sense: A fall in home prices of 31% or a fall in mortgage balances of 2%? (see above)? There is probably no greater lie in our economy today than the divergence in values of homes and mortgage balances. Our economy is not fixed until this is fixed, and yet nobody talks about fixing it because nobody sees it or considers it.


The key is uniting the value of real estate and the income of property owners and renters. What we need is a rational capitalist market. We need a market price driven by private actors. The Fed, the Treasury, and Fannie & Freddie have destroyed the free market in housing and by doing so they are orchestrating poverty and misery for any person who needs a place to sleep at night.

Real estate has an established price over time. That has been proven by Case Shiller. Their study of 120 years of data offers obvious evidence. They are on record saying housing is a stable asset with no change in value from 1890 to 1990. And all the other screamers who say pricing is different now simply argue based upon imagination and prejudice.

I say go with the hard data. I say Case Shiller is right. I say return to the trend lost in 1990. Values must fall. I estimate by an additional 22 percent.


We should all be cognizant of the positive value of falling prices. If unemployment is high, and demand for labor requires a reduction in pay, then make housing cheap and we kill three birds with one stone: We reduce the cost of labor, put labor to work, and maintain the material standing of the wage earner. Who argues against this? By their actions, all of the powers that be in Washington D.C.

As you think about this you may come to embrace a fall in prices as the right thing to do on so many levels. For 20 years the most difficult bill we pay every month has been made much more difficult. And in case you hadn’t noticed, we’re having a problem competing against cheap labor all over the world.

There’s no end in sight to the stupidity of government actions meant to stop prices from falling. Such is the folly and consequence of men and women with power playing games they do not understand. Go ahead and hang the bankers, but make sure to burn the economists at the stake. They are safe because they can calculate in their head if the heat of the fire is deadly.


PRINT — Housing Values Are Falling Again.

Please forward questions, corrections, and reactions to comments below or send me an email. Please send an email if you would like to take out a new mortgage. Thanks for carrying the story to Business Insider, Housing DoomImplode-O-MeterMortgage News Clips, Patrick.net.


Michael David White is a mortgage originator in Chicago.

22 thoughts on “Housing Prices Are Falling Again. We Have a Moral Obligation to Embrace The Trend.

  1. JLee

    I have been looking for years for an analyst to say that higher housing prices are the worst thing for any economy and any society. Imagine developing and implementing polices that make housing more and more expensive instead of policies that make housing cheaper and cheaper. It’s simple, if things cost less then one’s standard of living goes up. Does anyone really believe that the average person’s standard of living has gone up in the last thirty years? Certainly not, if you look at any economic statistics. So as a society we have planned to make ourselves poorer and poorer. Can we be any more stupid?

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    1. Hi Jon, this story reminds me of listening to somebody talk for what seems like a very long time. then when they stop, the first thing that comes to mind is the question: “Did you say something?” thanks for your comment. mdw

  3. Dan

    The economy will not recover until housing is affordable (back to 1990s level). Ideally, this will happen in nominal terms w/o much inflation instead of real terms w/ much inflation. But it will happen in real terms no matter what tricks the government and the Fed play. The assets are simply overpriced and everyone now knows that everyone else knows the emperor is wearing no clothes.

    Until house prices come back to reality, first time buyers like me, who have been saving for 10 years while waiting for this obvious (and yes, it was obvious) bubble to pop will not purchase a house. We’ve waited 10 years, we’ll continue to wait. And we are the only ones with the cash to buy houses, the perfect credit scores, and the financial prudence to stay in the homes.

    And most of us are first time buyers. Without us, there is no movement up the property ladder. Congress and the president should stop placating to underwater home owners who hopped on the greed bandwagon, and start supporting the prudent first-time buyers. We are the only people who can stabilize the economy by stabilizing house prices and shoring up the financial sector. And we WILL NOT hold the bag for greedy Baby Boomers and older GenXers who caused this problem. We WILL NOT become debt slaves to save the retirements of the previous generation. Any attempt to shift the burden of this crisis to us through inflation, will only make the crisis worse as we can and will move our liquid assets to foreign stocks and bonds.

    The fools in government keep prolonging the correction. Doing so has only made things worse. It’s already too late to avoid a long-term housing bottom. You see, the fools didn’t realize one thing: had the correction been quick, it would be over by now, but by prolonging it, the correction now has to overlap with a much longer-term trend. Right now, the first Baby Boomers are retiring, and they have little savings. They will be forced to downsize to pay for their retirements, and there simply are not enough Gen Xers to replace them.

    Because of the governments efforts to prolong the correction, the housing market will not recover until the last Baby Boomer dies of old age. Look for a recovery in the housing section in the year 2050.

  4. Jon

    You wrote:

    There is probably no greater lie in our economy today than the divergence in values of homes and mortgage balances. Our economy is not fixed until this is fixed, and yet nobody talks about fixing it because nobody sees it or considers it.

    I think the financiers have considered it and see it as potential ruin. Thus we have the elimination (about 1 year ago) of mark-to-market accounting rules.

  5. cageordie

    The lack of realism in the property market always reminds me of The Wizard of Oz. If you say something is true then the word is the deed. I wonder how much longer people will keep on clicking their heels together and chanting “there’s no place like home”?

    But this is the real world, and a piece of paper doesn’t make you smart. So, ultimately, the mathematics of the situation will win and all those who have overvalued ‘assets’ will convert the difference in to debt. Their debt. But most of them can’t pay. I earn under $200k as an engineer, but they tell me the average is well under $100k. But I hear from my friends that many of them took out $800k loans on million dollar properties. I couldn’t pay that back. Realistically. And I don’t have two young kids. There’s a lot of people barely holding on right now in San Jose.

    1. Hello cageordie, there’s no question the finances of owners who purchased in the last five or ten years are hurting if they bought high-end properties in high-bubble locations. no way to pin this down as far as I know. thanks for your comment. mdw

  6. joe


  7. JD

    Insight…citeful piece. Thank You! As with all analysis there are always additional variables to consider. My curiosity is about your bubble chart regarding ‘Outstanding v. Supportable debt’ Would you tend to believe that the supportable debt is higher now than the trend-line shows, because of the artificially low interest rates. I can’t remember what my rate on my mortgage was back in the 90’s, but I want to say 8-8 1/2%. So if rates are 4-5% now, wouldn’t that support a higher ‘ affordable’ debt service level…? The question is, how long can these low rates be sustained? There will come a point when housing is priced correct again, and interest rates must increase with demand / competition for funds. When this occurs, the affordability index gets reduced, as less house can be purchased because of the higher rates. Time will tell, but I feel that when this begins to happen, it will be the next leg of the crisis, and I feel a large percentage will be locked out of the market, putting further downward pressure on prices.

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    1. Experienced

      It safe to buy when you can afford the payments and have something left over to put in the bank at the end of the month!!

    2. Hi Phil, I would stay clear of buying for three to five years unless you find the perfect home at a great price where you want to live for a long time and you don’t mind losing 25% or 50% of what you pay. thanks for your comment. mdw

      1. uff the fluff

        Most buyers today won’t lose half on resale unless they pay a 2007 price, but those who expect to break even are sadly mistaken.

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