by Calculated Risk on 2/23/2011 03:13:00 PM

Back in 2009, when the house price bottom callers were out in force, I pointed out that real house prices usually bottom after the unemployment rate peaks - and sometimes several years after the peak (like in the '90s).

Below is a comparison of real house prices and the unemployment rate using the Corelogic house price index (starts in 1976) and the Case-Shiller Composite 10 index (starts in 1987). Both indexes are adjusted by CPI less shelter.

Click on image for larger graph in graph gallery.

The two previous national declines in real house prices are evident on the graph (early '80s and early '90s). The dashed green lines are drawn at the peak of the unemployment rate following the peak in house prices.

In the early '80s, real house prices declined until the unemployment rate peaked, and then increased sluggishly for a few years. Following the late 1980s housing bubble, real house prices declined for several years after the unemployment rate peaked.

Although there are periods when there is no relationship between the unemployment rate and house prices - like during the bursting of the stock market bubble - this graph suggests that house prices do not bottom in real terms until the unemployment rate has peaked - and probably not until a few years later (the recent housing bubble dwarfed the previous housing bubbles, and the bust will probably take some time).

Clearly this analysis was correct since real house prices are now at post-bubble lows! I'd expect real prices (inflation adjusted) to fall for another 2 or 3 years, even if nominal prices bottom in 2011.