Krugman and House Prices

Paul Krugman has a nice chart worth passing along. You can see it at his New York Times Blog here: Highly unlikely?

The quick point to make is that house prices still appear to be at least 15% too high, and given the high levels of unsold inventory, the continued decline in prices will not just eliminate this 15% but ‘overshoot’ on the downside, so the total fall yet to come could be as high as another 20%.

This means that those ‘outlier’ stress tests the Treasury is doing on the banks to check their solvency are not so ‘outlier’ after all. Indeed they may well be ‘base case’.