What is the New "Normal" in Housing Prices?

"Last week, Standard & Poor's released October figures for the Case-Shiller housing price index. The quite modest gains seem to have caused some consternation, but housing markets are doing exactly what we should expect them to do.

"There is no reason to expect a big post-slump jump, and every reason to expect that prices and construction levels will continue to muddle along for quite some time. Don't expect prices to return to their boom levels for years, if not decades."

"In much of America - Dallas, Houston, Phoenix, Las Vegas - price should remain tethered by construction costs. Land is abundant. There are few regulatory limits the building. The price of a house should be close to the cost of building a house.

"After the brief insanity of the 2003-06 period, prices in these places seem to have returned to the costs of development, and that is where we should expect them to stay. Some places, like Dallas and Houston, remained at construction costs throughout the boom."

"There is more to like in low housing prices than in low levels of building. After all, a weak construction industry will help keep unemployment high. But it's going to take years to work through our housing glut, and during this period, stability is the best we can hope for."

Thanks to Franny Ritchie