6 Responses to “Economist sees two markets; recovery in sight?” »»

1. Hard rain
   Comment by Hard rain | 02/26/08 at 7:57 pm

   And what does that tell you John? wouldn’t logic suggest that we have a long way to go on the downside…

   “True, that. I think I read somewhere that prices have increased 160% between 1995 and 2005 and have only gone down 5-8%, since then”

2. John A Keith
   Comment by John A Keith | 02/26/08 at 8:35 pm

   No.

3. Anon
   Comment by Anon | 02/26/08 at 11:26 pm

   Assuming a 4% inflation rate and a drop of mortgage rates from 9% in 1995 to 6% today, house prices should be up 120% from 1995 to 2008. Sounds to me like house prices need to drop about 25% to hit this target.

4. North Georgia Real Estate
   Comment by North Georgia Real Estate | 02/27/08 at 8:20 am

   I think Anon is right! There are many places in the country with higher priced homes that are foreclosing because the homes where over inflated in relationship to the ability to pay for them.

5. Anona
   Comment by Anona | 02/27/08 at 8:47 am

   From today’s Wall Street Journal story on house prices:

   “Goldman Sachs Group Inc. estimates home prices ultimately will fall by 20% to 25% from the peak of the housing boom, while Merrill Lynch chief economist Dave Rosenberg says they could fall even further. According to the S&P/Case-Shiller national home-price index, prices have fallen 10.2% from their highs in the summer of 2006. In some areas, the declines have been much steeper. Prices in the Miami area were 17.5% lower in December than they were a year earlier, and prices in Las Vegas, Phoenix and San Diego have fallen by 15% or more.”

6. Matt
   Comment by Matt | 02/27/08 at 2:04 pm

   Eric Janszen wrote in a recent article that housing prices historically follow the trend of inflation; based on restoration of that trend he expects prices to fall 25-30%.

   Clearly, some areas will be punished more than others. There was a lot of overbuilding in places like Nevada, Arizona, Florida, and Georgia that did not occur here. However, from a growth perspective, Massachusetts is a demographic mess - our population is growing very slowly. If new housing construction outpaces pop growth, it is logical to expect that price increases cannot be maintained (ignoring second house ownership).

   I have to disagree with the idea that Chip Case seems to be stating, i.e. that the mid and high level housing markets will decouple from the subprime/low level markets. Much of the real estate business is based on “moving up” - so in order for the mid/high market to recover, it must be possible for people currently in the low market to move up. Currently, they cannot, because they can’t sell their low market properties to new buyers. There are no new buyers entering the low market because (a) foreclosed houses sell for much less and (b) lending standards are getting tighter, meaning that fewer people qualify for loans. The exception, of course, is the very high end market, which consists of the small number people for whom price is not an issue.

   If the real estate market recovers, it will recover as a whole. What has to happen is that the low end of the market must fall far enough to allow young people (e.g., me) to qualify for a mortgage. Not an exotic negative amortized or 2/28 zero-down, an old school 10% down fixed-rate mortgage. When that happens, new buyers will appear. People in the low market will then be able to move up, but not unless prices in the mid market decline as well to account for the fact that they will sell their low market house for less.

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