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Housing prices have been stable for over a year

The top chart shows real housing prices (deflated by the PCE deflator) based on the Case Shiller composite of prices in 20 large metropolitan markets. The second, which has a longer history, shows a composite of the 10 largest markets. Both send the same message: in inflation-adjusted terms, home prices have been stable for over a year, after a shocking plunge that lasted three long years.

Have prices achieved a new equilibrium? It looks that way to me. Take the second chart, for example. That shows that on average, home prices have increased about 1.5% per year in real terms over the past 23 years. That's consistent with other measures of home prices I've looked at, and could easily be a reflection of the gradually improving amenities and size of the average home over time. Consider also that real incomes have risen about 3% a year over this same period, so in terms of affordability, home prices are cheaper today than they were 23 years ago, not to mention the fact that financing costs are far lower than they were in the 1980s.

Yet the drumbeat of the pessimists has seemingly never been louder.

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