Falling Prices and Rising Sales

In an earlier posting , I said that sharp price reductions have had much to do with the rising volume of home sales in the Bay Area. I should have included this chart with the earlier posting.

Each dot represents one of the nine Bay Area counties. The horizontal axis shows the year-on-year change in the median home price. The vertical axis shows the year-on-year change in the volume of sales. The dashed line is a least-squares fit of the data points.

The theoretical value of the line is dubious, but it does help to illustrate my point. The line intersects the horizontal axis at a value of -30%. That's how far prices had to fall in a typical Bay Area county in order to keep sales at the same level as a year ago. In counties where prices fell further, sales volumes have increased significantly compared to last year's levels. But that clearly shouldn't be taken as an indication of health in the housing market.