The Little Bubble That Couldn’t
At the risk of quoting Bill O’Reilly, there’s a kind of a culture war going on between folks like me in the Real Estate Business (and presumably, homeowners who are concerned about the value of their investment), and the bubble bloggers, who’s premise is that the end of the world as we know it is happening / has happened / will happen / will never stop happening — something like that.
Lately it’s struck me that the sort of price depreciation I’ve seen since the peak of the market (in July or August of 2005, depending on what indicator you use) has been rather gradual compared to the double-digit appreciation of the previous five years. 
So I set out to understand how much ground the average Sacramento County homeowner has lost in the nineteen months since July of 2005. Specifically, I wanted to know when prices were last at the “low” they are now. I expected the answer to be some time in 2004 or 2003.
Even I was surprised at how little the prices have changed in the horrible awful we’re-all-going-to-die period of the disaster-horror-story be-very-affraid time since the death-star-bubble burst.
The answer is this: In 19 months, the average sold price per square foot has gone down 10.2%. That works out to be a rate of decline of 6.4% per year.
So, 10.2% over 19 months is a bubble bursting?
Well, let’s see how the stock market compares. Here’s what Wikipedia has to say about the Crash of 1987:
The Crash was the greatest single-day loss that Wall Street had ever suffered in continuous trading up to that point. Between the start of trading on October 14th to the close on October 19, the DJIA lost 760 points, a decline of over 30 percent.
OK, granted, that was the result of five really bad hair days on Wall Street (if you count the weekend). Compared to that, the “mini bad hair day” of a 3.3% drop on February 27, 2007, was really no big deal. So a no big deal loss on the stock market is 3.3% per day, while the catastrophe of the real estate bubble bursting in Sacramento has worked out so far to a decline of 6.4% per year.
So I’m more than unimpressed by the bubblers. I used to be simply unimpressed — now I’m impressively unimpressed!
OK, so much for the rate of decline. Here’s a surprising word or two about the magnitude of the decline: the total losses in the past nineteen months since July 2005 have only wiped the gains made in the previous four months, from April to July of 2005.
Check out the chart below to see where today’s prices intersect the gaining prices of early 2005.
It’s the “end of the world as we know it”, and I feel fine.
