The headline today on a CNBC article was “US Housing Crisis is Now Worse than Great Depression” and there are many similar articles in other publications as well…in fact, if you Google “Housing Crisis Worse Than Great Depression” there are over 100 exact matches just in the past month. The writer’s all seem to be hanging onto one stat that came out of the Case-Shiller home price index reports, that being that the “peak to trough” decline in home prices during this housing recession has hit 33 percent, which exceeds the 31 percent decline during the Great Depression. But wait, there’s a LOT MORE to look at…

A single stat is not the whole story…

Before I go further I should clarify, I’m not saying this housing recession is not bad, in fact more like horrible, but before we go comparing this “crisis” to the Great Depression, we may want to look at more than one stat in the Case-Shiller data. There is no argument in the fact that the peak to trough decline in this current housing market bust has exceeded the one that happened in the late 1920’s and early 1930’s, however, let me ask you this; based upon that single fact if you could trade places with a homeowner (from purely a real estate investment standpoint) from 1933, which was about the bottom of the trough, would you? If you answered yes, you may regret it.

Maybe we should look at appreciation before the fall…

So, assuming you weren’t unfortunate enough to have made your first investment in a home, or other real estate, at the very peak of the market and sold it at the very bottom of the market (uh, about now) then I think it would be wise to look at what has happened price-wise with your home during the period you have owned it, or owned another home, to get a look at the big picture. To put it in perspective, while it hurts to lose 33 percent of the value of your investment in the past 3 years or so, what if your home had appreciated in value 63 percent in the 7 years you owned it prior to the crash? Your home would still be worth 30 percent more than you paid for it which is not so bad given the magnitude of the current recession.

The bigger picture…

With the above issues in mind, I spent some time reviewing the home price data that Robert Shiller had complied for his book “Irrational Exuberance”, which includes data back to 1890. Below are the results of my analysis:

Great Depression Housing Market Crash:

• Home prices peaked in 1925 after rising for 4 years prior – home prices then decreased, with the exception of a slight up-tick in 1928, for the following 8 years, ultimately falling 30.5 percent from “peak to trough” to an index of 4.40 in 1933.
• In the eight-year period prior to the bust home prices rose 27.82 percent.
• If you purchased a home in 1923 (10 years prior to the trough) and sold at the worst point in the market (1933) your home would have decreased in value 26.7 percent

The Current Housing Market Bust:

• Home prices peaked in 2006 after rising for 14 years prior – home prices then decreased for the following 4 years, ultimately falling 33.5 percent from “peak to trough” to an index of 125.41 in the first quarter of 2011.
• In the eight-year period prior to the bust home prices rose 104.88 percent.
• If you purchased a home in 2001 (10 years prior to the trough) and sold at the worst point in the market (2001) your home would have increased in value 46.0 percent

When you look at the bigger picture, and take more stats into account when comparing the present day to the Great Depression, I think it becomes very obvious that, as far as home prices are concerned, today is NOT like the Great Depression at all….home values rose over 104 percent in the 8 years proceeding the current bust but rose only about a fourth of that amount during the depression era bust. Current homeowners that purchased 10 their homes before the boom and bust still have homes worth 46 percent more than they paid for them ten years ago. In the depression era homeowners lost over 25 percent of value during the same period.

Obviously there are differing opinions on this topic, and, while I don’t know exactly how scientific my approach is to looking at it, I think it is a good common sense approach. I would invite readers to share their opinions and analysis in the comments.

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