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Commercial real estate has taken a huge hit

One more chart to put the home price development in a broader context. This chart compares residential home prices to commercial property prices. Residential prices have fallen about 30% from their peak, while commercial property prices have fallen 40%. Those are serious, significant declines that reflect a huge amount of price adjustment, easily enough to absorb excess inventory. Both charts suggest that we may have found a new equilibrium price. Market participants still fret, however, that this is not the case. Everyone seems to be worried right now that asset prices are poised to decline to new lows, and that this will mark the start of a new depression. I don't believe it. I see too many signs of ongoing improvement: strong commodity prices, rising retail sales, rising incomes, strong manufacturing reports, rising rail shipments, rising container exports, etc.

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