From the Record:
Home prices may drop as much as 25 percent, after inflation, over the next five years, economist Robert Shiller, co-founder of the Standard & Poor’s/Case-Shiller home price index, said Thursday.
“A 10 to 25 percent further decline in real home prices over the next five years would not surprise me at all,” Shiller said at a Standard & Poor’s housing summit in New York.
Shiller, a Yale professor, said it’s possible that the market will follow the grim path seen in Japan after a 1980s housing bubble. Property values there declined every year for about 15 years, dropping by two-thirds overall, he said.
But he cautioned that he was not making a forecast, saying that since the recent housing boom-and-bust cycle was the biggest in U.S. history, he can’t use previous housing patterns to figure out where this market is headed.
“It’s impossible for statisticians to forecast,” he said. “I honestly don’t know.”
Other housing analysts have recently predicted that prices will continue to drift lower this year and “bounce along the bottom” for a while, but the loss mentioned by Shiller is larger than most experts have forecast.
Shiller was joined Thursday by a number of housing experts, most of them also pessimistic about the housing market’s short-term prospects.
Keith Fox, president of McGraw-Hill Construction, which tracks the building industry, predicted that about 640,000 single- and multi-family units will be built in the U.S. this year. While that’s an improvement over the past few years, it’s well below the 2.2 million units produced in 2005.
“You can clearly see how depressed this market remains,” Fox said. And when residential construction dries up, other types of construction – including retail, schools, offices, and even roads – also slow down, because there are fewer new homeowners to use them, he said.
Fox said, however, that residential construction should post healthier gains in 2012 and 2013.
Other analysts said the high rate of homes in the foreclosure process will continue to weigh on the market. Diane Westerback, a managing director at Standard & Poor’s, said clearing the market of foreclosure properties will take longer in states such as New Jersey, where lenders must go through the courts to repossess homes. Foreclosure activity has slowed to a crawl in the state as lenders try to prove that they are following the correct legal procedures, after questions were raised last fall.
Christopher Mayer, a professor at Columbia University, said that homes on the market, plus those that will be dumped on the market because their owners can’t pay their mortgages, add up to about 1 1/2 years’ worth of housing inventory. Given those numbers, he said, “house prices are going to continue to fall.”
Thomas Gleason, a housing finance executive from Massachusetts, brought up the old adage, “May you live in interesting times.”
“As my kids would say, ‘Been there, done that,'” he said. “I’d like to live in a time where there’s a fully functioning housing market. That would be really interesting.”