[quote=werdna]
Does this mean if last month’s trend continues absolute prices will level off or perhaps decline modestly? [/quote]
I think it’s reasonable to conclude that, yes. Prices are not that far from having leveled off as it is (by which I mean, they’ve been rising, but slowly). A flattening out is just not that different from what we are seeing now, and a modest decline (especially in the weak season) isn’t either, really.
But that’s IF last month’s trend continues… I don’t pretend to know whether that will happen or not.
[quote=werdna]
What would cause a significant decline in absolute prices (10% or more)? Is a major slow down in the larger economy a pre-requisite?[/quote]
An abrupt rise in rates could do it, for sure. We already have a real-world example of this happening. Prices were skyrocketing in the first half of 2013, then a 1% rate increase absolutely stopped that rise in its tracks. Prices flattened and even went a bit negative into the end of the year (see the redfin graph to the right for reference).
During the strong season this year, they’ve risen a bit (as rates have declined, no coincidence in my view) but nothing like last year.
Clearly, a sufficient rate rise could have a negative effect on pricing, as happened already.
Of course, a serious economic downturn could also push prices down. But I see the rate thing as the bigger risk. I think people are greatly underestimating how much artificially low rates have supported various aspects of the economy, including housing… which is all well and good until rates get back to normal. And as we saw last spring, despite widespread belief to the contrary, the Fed is not entirely in control of this process.
Went off on a bit of a tangent there I guess… to directly answer the question, no, I don’t think an economic downturn is a prerequisite. I believe that an abrupt normalization of rates could be sufficient to push down prices on its own.
