by Calculated Risk on 5/29/2008 04:07:00 PM

From the Economist.com: House Prices: Through the Floor (hat tip Ryan)

Earlier this week, the S&P Case-Shiller National Home Price index was released showing a 14.1% decline over the last four quarters. The Economist has a chart (from Professor Shiller) putting this decline into historical perspective by showing the YoY change in U.S. house prices since 1920. The Economist notes:

Now Robert Shiller, an economist at Yale University and co-inventor of the index, has compiled a version that stretches back over a century. This shows that the latest fall in nominal prices is already much bigger than the 10.5% drop in 1932, the worst point of the Depression.

During the Depression, the rapid decline in house prices was primarily due to the extremely weak economy and high unemployment. This time prices are falling rapidly because of the excesses of the housing bubble - especially excessive speculation and loose lending standards.

This doesn't mean the economy will fall into a depression (very unlikely in my view); instead the current rapid price decline shows how ridiculous house prices and lending standards were during the bubble.