Pimco released their fourth quarter 2005 Market Outlook:
Pimco, taking a bearish position of real estate, is forecasting a slowdown, however, they stop short of forecasting a full-blown crash, but instead take the cautious soft landing position.
The direction of the U.S. housing market will be a critical factor in determining Fed policy over the next year. Recent gains in the U.S. property market have not only supported consumer confidence but also produced a surge in housing-related employment and residential investment. The greatest threat to the housing market is a decline in affordability. The last decade’s gain in home prices relative to incomes are not sustainable because higher mortgage rates and increased energy prices will reduce what consumers can afford.
Most intersting in this report is their graph of Home Price Appreciation Minus Home Growth.
A beautiful illustration of the last two housing busts. However, it certainly looks quite different this time. I’m really not sure why Pimco took the cautious position, judging from the graph it’s quite obvious that should the lending prop fall out from the housing market there is no telling what might happen.