From the Christian Science Monitor
How long will the housing slump last?
First came a slowdown in the volume of home sales. Now prices are falling, and the question for anyone selling, buying, or even just hanging onto a home is: How far and how fast?
The expert consensus: The slump could last into the summer of 2007. And the speed could depend on how many people hit the panic button or take their homes off the market.
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Historically, it’s rare for prices to sink very far nationally even when recessions occur. The National Association of Realtors (NAR) predicts a return to stability next year. But some economists are forecasting a tougher climate, thanks to an extraordinarily large run-up in prices in the past couple of years and homebuyers’ increasing reliance on exotic new types of mortgage loans. Merrill Lynch predicts a 5 percent home-price drop in 2007, while Goldman Sachs, another New York investment firm, forecasts a 3 percent decline nationwide.“The housing market is weak and getting weaker,” says Mark Zandi, chief economist for Moody’s Economy.com. “It appears the downturn has a ways to go.”
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Pessimists say a speculative “bubble” had built up and now needs to unwind – possibly over several years.“As draconian as that sounds, a 5 percent price decline would only reverse one-tenth of the price run-up over the previous five years,” Merrill Lynch economist David Rosenberg wrote in a recent report.
“Additional price declines should not be surprising,” says Asha Bangalore, an economist at Northern Trust Co. in Chicago. “We have a recession in the housing market…. Usually it takes two to three years to stabilize.”
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Some of these trends are likely to continue, until next summer, says Zandi, when he expects to see housing start to stabilize. With such a long period of weakness, he says, it’s beginning to look as if home prices might fall in 2007 by about 5 percent on a year-over-year basis. “This would be the first calendar-year decline since the Great Depression,” he adds.
August looks to be the month where sales really fell off a cliff in the most bubbly areas. California, Mass, and Fla all had sales 30% lower than last year with huge inventory to boot.
Historically, it’s rare for prices to sink very far nationally even when recessions occur. The National Association of Realtors (NAR) predicts a return to stability next year.
Historically, the last time the NAR made a prediction, it was wrong.
IE: David Lereah projected growth in 2006.
When you read that Thornburg says housing prices will be down a few per cent in 2007 or Rosenberg at Merrill figures a drop of 5% or even Roubini says down 5% – 10% I think you have to read between the lines. None of these economists wants to be blamed for badmouthing the economy and spooking the sheeple.
My guess is they all figure it will be deeper and longer than nearly anyone is saying now. Even Shiller’s forecast is milder than his analysis would suggest. Everyone is whistling past the graveyard and even if I don’t believe them I hope the whistling works and we avoid a severe recession since there will be few winners. The best strategy is to plan for a fairly worst case scenario, in my opinion.
I’m moving from an euthenasia quick drop theory (2 years) to a more agonizing death approach. The two stalls by the Fed will add a couple of years, at least. Politics are crucial, as is the US need for guns over butter right now. What sector will be the sacrifical lamb to the Democratic gains right now? Maybe we should revisit this after the election.