Personally, I don’t think that housing discussion benefits from the use of real house prices, unless there is specific analytical reason. Nominal house price change is most useful since most people are concerned about how that stacks up against nominal mortgage rates and the nominal value of the mortgage. I do not know why Fitch would use real house prices changes unless it is to give the impression that they are super careful now (after they and their ratings agency pals caused about half a trillion losses round the world and catalysed a serious world slowdown) by exaggerating the headline percentage change figure quoted. And this will confuse many people. No doubt some people in SD are going around today saying that a rating agency has said “prices” will fall 47%.
If they have assumed a reasonable 3% inflation rate, that translates to a further 32% decline over five years in SD average prices. I get the sense from Piggs comments that such a forecast is overly pessimistic. Perhaps it relates, in effect , for their purposes, to the areas covered by the securitized loans they have rated. in which case they are saying a 32% decline in the ‘worst’ areas. hard to know without comment from Fitch.
