by Calculated Risk on 12/03/2007 12:47:00 AM

In Paul Krugman's dismissal of Ben Stein's NY Times piece, Krugman writes:

For what it’s worth, Goldman’s forecast of a 15 percent decline in home prices seems implausible to me, too — but on the low side. A 15 percent decline would bring prices back to their level in early 2005 — when the bubble was already well inflated. If prices fall back to their level in early 2003, that’s a 30 percent decline.

Click on graph for larger image.

This graph shows 15% and 30% nominal price declines for the S&P/Case-Shiller U.S. National Home Price Index and the OFHEO, Purchase Only, SA index.

A 15% nominal price decline would take prices back to late 2004 for both indices. A 30% price decline for Case-Shiller would take prices back to mid-2003; 30% for OFHEO would take prices back to late 2002.

If we look at price declines in real terms (inflation adjusted), and assume the price declines will occur over several years, a 15% price decline is almost guaranteed. The Case-Shiller index is already off 8% in real terms from the peak.

BTW, in a debate between Jan Hatzius and Ben Stein, the smart money will be on Hatzius. That said, here are Ben Stein's housing predictions from 2006 (along with a couple of guys that be would perfect for the Southwest "Want to get away?" ad campaign):

This show aired at the end of 2006. Note that LongIslandBubble.com overlaid the graphics and text on the video.