All Housing Is Local Again

Neil Irwin has a good, difficult to summarize piece in the Washington Post about the latest Case-Shiller stats. I think the difficulty of summarizing the trend is the story.

If you think back to the housing bubble years, part of the boneheaded conventional wisdom in the financial models banks were using was the idea that a uniform national upward or downward swing in house prices was impossible. That was a goofy thing to believe. But the models believed it for a reason. Not because they didn’t know about asset price bubbles, but because in their backward-looking datasets all bubbles had been localized. The inference they drew from this—that broad national swings couldn’t happen—was plainly invalid.

But it’s still true that historically house price trends have been more a local or regional thing than a national one. Part of a “return to normalcy” in the housing situation should be a return to that kind of situation. It’s a great big country out there with hundreds of millions of residents, and enormous variation in both economic conditions, zoning codes, and construction costs. There’s no reason prices in Phoenix should systematically move in the same direction as prices in Portland and so for a while now we may just see this kind of noise with no clear trend.