Capital Economics Reports Current Crash Has Surpassed Great Depression

Economist Paul Dales at Capital Economics calls the Great Depression fall in housing prices a loss of 31 percent (MarketWatch). How bad was it then? The post-depression turnaround to re-attain the bubble high took 19-years.

That means if we start today and our rebound mimics the Great Depression, we are good and back to normal in 2030. Which raises the obvious question: Will we be alive?

On the bright side: Dales says housing is currently undervalued by 24 percent.


Barry Ritholtz calls the greater-than-the-depression call unjustified. Says Case-Shiller uses hypothesized data for the Great Depression. He throws out baby and bath water. Mentions new home sales have fallen 82% in our cycle versus 80% in 1929-33. The other Great Depression falls: GDP fell 30 PERCENT. Peak-to-trough Dow crashed 89 PERCENT. Wow. “Banks were failing by the 1000s.” I’m starting to believe Barry.

A point against him: Our current bubble was radically greater than any previous bubble (If you believe the hypothesized Case-Shiller numbers. I do.). That would mean we could fall much further.

Ritholtz mentions a cause of the difference between the two periods. Mortgages back then were 3-to-5 year loans. Not 30 years. He seems to suggest the short loans favored a greater fall in prices.

The opposite is true. Our current gargantuan loan periods allow the same income to pay a ton more for a house. Thus did the Affordable Homes’ geniuses crank up the price of real estate by creating the 30-year mortgage.

Ritholtz has hard numbers on real estate prices in a study of Manhattan from 1920 to 1939. The fall in prices? 67 Percent.

If they were far less leveraged back then, then our fall in prices should logically be greater. Some say it already is (see first paragraph). Check out our Case-Shiller chart immediately below showing a fall in prices of 37 Percent.


Core Logic reported today a gain in prices of .7 percent in April. This is the first gain following the home-buyer tax credit expiration in mid-2010 according to Calculated Risk. The same report shows a price fall of 7.5 percent over the year from April 2010.


Stephen Meister at the New York Post reports the following price-reducing trend: “The economy still isn’t producing enough jobs to keep up with the growing workforce. So people are reluctant to become first-time homebuyers because they’ve lost (or fear losing) their jobs, and because they fear further price drops. That means “trade-up” buyers can’t buy — even if their jobs are secure — because there’s no one to buy their current (starter) homes at a price that will pay off their mortgages.”


I’m trying an experiment this month and posting every business day (I hope). My philosophy has been that I should only post when I have deeply researched a subject or have command of breaking facts. Now I’m going to try to summarize interesting facts and opinions as they fly in.

Please send the interesting to

6 thoughts on “Capital Economics Reports Current Crash Has Surpassed Great Depression

  1. XJ

    Hi Mike,

    Your rebound comparison with Great Depression is interesting, but does not make sense. I believe in today’s technology (e.g. Internet, Bio-tech, etc.) and globalization will accelerate recovery at a speed we could never imagine during the Great Depression. Enjoy your blog. Keep up the good work.



  2. Tom

    Michael – good post and I especially enjoyed the multiple charts in a recent post I saw by you (on Seeking Alpha? I don’t recall now) – very well done. I find it most useful to blend information I read / learn from a handful of experts – you are one in the area of the housing mess. Reggie Middleton is another; are you familiar with his opinion about the Case-Shiller index and its limitations? I believe that info coupled with yours is very relevant. Anyway, keep up the good work. I’ll look forward to receiving your stuff out here in San Diego. – Tom

  3. Another great post Michael. However, I am a little confused about your quote about economist Paul Dales conclusions at Capital Economics:

    “…So if we start today we are good and back to normal in 2030. On the bright side: They say housing is currently undervalued by 24 percent.”

    If they think it is going to get worse and for a long time, how can they also think that housing is currently undervalued?

    Keep up the good work.

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