Given that housing prices have gone up about 40% in just two years, there could be a lot more correction.
This latest Case-Shiller report—which found a 2.2% price decline in U.S. homes since June—means we’ve moved into the second biggest home price correction of the post-World War II era. On paper, it’s tied with the 2.2% drop between May 1990 and April 1991, however, given that the index is a three-month average, we know the October numbers will surpass that mark. That said, it’s still far below the 26% peak-to-trough decline that occurred between 2007 and 2012.
How can this 2.2% drop already qualify as the second biggest correction of the post-World War II era? It boils down to the fact that, historically speaking, home prices on a national basis have been fairly sticky. Sellers resist going below market comps unless economics forces their hand.
“I think that the religion people had from 1946 to 2008, that housing prices always go up, is dead. My parents believed that it was literally inconceivable for [home] prices to go down,” Glen Kelman recently told Fortune. The ensuing 2008 housing crash broke that “religion” and taught buyers and sellers alike, he said, that home prices can indeed fall. “So folks respond [now] to that [correction] with almost PTSD, and they pull back much more quickly.”