Tuesday, August 25, 2009

Professor Shiller's Own Index Contradicts Him, and Confirms Supply and Demand

Professor Shiller himself (with the ideas of supply and demand conspicuously absent from his analysis) said in June that housing price declines "may well continue for some time." Housing price data released today seem to further contradict his prediction.

When he said that, he had six months more data than I did in December when I said (based on supply and demand) that housing would turn around "summer 2009."

The chart below shows his index as a ratio to construction prices, together with the volume of construction activity (I am not sure about the most recent month's breakdown between tenant and owner occupied ... still working on that). I'll let you decide whether (as of June), the housing market was still in free fall.

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