Free-Fall Ain’t What It Used to Be (Updated)

Dr. Krugman is concerned about the economy:

Home prices are in free fall. Unemployment is rising. Consumer confidence is plumbing depths not seen since 1980. When will it all end?

Prudently, he corrects himself a little (but safely away from his opening eyecatcher):

Specifically, real home prices, that is, prices adjusted for inflation in the rest of the economy, went up more than 70 percent from 2000 to 2006. Since then they’ve come way down — but they’re still more than 30 percent above the 2000 level.

and goes on to consider the case of Los Angeles. Fair enough. Let’s consider Los Angeles, one of the metro areas most affected by the decrease in housing prices. Here’s a graph of LA home prices:

and, yes, there’s a little downturn there. Down from their peak but still higher than they were in 2004. Here in Chicago home prices have fallen less than 10% over last year. But “housing prices are falling a little” isn’t much to base a call to the barricades on, is it?

I do think that this supports the point I’ve been making here for a while: the effects of the mortgage crisis and, I think, the economic turndown generally are very markedly regionalized. That suggests a highly regionalized solution, no?


Calculated Risk has produced a much better graphic of the Case-Shiller index for Los Angeles and, sure enough, you can see that housing prices have given up their increases since 2004. Does that constitute “free fall”?

6 comments… add one
  • PD Shaw Link

    It’s not just that the problem varies in regions, the cause probably does to. The housing problems in Detroit are not likely to be rooted in the same problems as those in Southern California.

    BTW/ California has the lowest rate of home-ownership due to unaffordable housing. That’s a problem too.

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  • A dependable way to know what’s not actually happening is to let Krugman tell you it is.

    After all, the man has accurately predicted 11 of the last two recessions.

  • kreiz Link

    Love it, Tully.

  • What annoys me, kreiz, is that Krugman really is a gifted top-flight economist…but he sold out his soul and professionalism for political hackery. Sad.

  • You and me both, Tully. I wish he’d stick to what he’s good at and what he really knows. There are a number of folks I feel that way about, e.g. Juan Cole. He’s a legitimate authority (in his actual field which is somewhat narrower than his biggest supporters seem to think). If he’d stick to it, he could perform a real service by educating all of us in Shi’ism. His political and military advice has been awful.

    That may be why I enjoy skewering these authorities when I catch them going a step too far.

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