Homeowners, You Don’t Want To Read This
Last Sunday, Kevin Hall from McClatchy Newspapers (the third largest newspaper company in the United States) talked about the direction of the U.S. housing market. He wrote:
Federal Reserve Chairman Ben Bernanke and Treasury Secretary Henry Paulson have suggested over the past year that an end is in sight. But with each prediction, things have grown worse. For many homeowners, the deep housing slump feels like a drop off a skyscraper. Every time another 15 floors have passed, there seems to be more room to fall.
Most of Hall’s piece focused on research by Mark Vitner, a senior economist for Wachovia, and Mark Zandi, chief economist for Moody’s Economy.com. Vitner told Hall:
I don’t think we get strengthening in the housing market until late 2011 or 2012… I think we’re somewhere between halfway and two-thirds of the way through the correction.
The Wachovia economist, who closely studies U.S. home price trends/sales and released a report back on July 14 entitled “How Far Will Housing Prices Fall,” predicts that prices will fall 22% to 29% on average from their peak before a bottoming out occurs. The median home price has lost about 11% since peaking in October 2005.
The housing forecast from Mark Zandi, chief economist for Moody’s Economy.com, is not much better. Zandi said:
My view is that we are two-thirds through the housing downturn, at least as measured by house price declines. The price declines began in late spring 2006 and will more or less come to an end in late spring 2009. The Fannie-Freddie debacle may push this out into the summer or even fall of 2009.
Zandi believes that unless the chaos in the financial sector is resolved, his forecast of a bottom in 2009 “will prove too bright.”
Identifying the bottom is even more trickier when historical trends no longer apply to a housing market that’s experiencing an unprecedented decline. Hall wrote:
Until the current downturn, median home prices had declined more than two months in a row only once, in 1990. But the decline now has lasted 22 straight months.
Don’t hold your breath though. Someone will be waiting in the wings ready to give anyone who’ll listen an unhealthy dose of jawboning about how a housing recovery is just around the corner.
Source:
“Housing prices haven’t hit bottom yet”
Kevin G. Hall
McClatchy Newspapers, July 20, 2008
July 23rd, 2008 at 10:49 pm
Nice post, as always, but you’re mis-using the word “homeowner.” A homeowner is some one actually owns the home, which would mean having total equity. In other words, some one who has paid off their house. Otherwise, you are a “mortgage holder,” not a homeowner.
Real homeowners are less concerned about the market, because they did not stake their future wealth on the nebulous concept of “the housing market.” By paying off property, one can then accumulate actual wealth. Not the pretend kind, like the people with the huge house and no equity.
Now, as for the value of that dollar wealth, well, that’s sinking. Kind of like the housing market. I wonder if the bill Bush is going to sign will help the market “recover.”
July 24th, 2008 at 8:47 am
Thanks for the comment Days of Broken Arrows.
“but you’re mis-using the word ‘homeowner.’”
You are correct… “mortgage holder” is much more appropriate.
“I wonder if the bill Bush is going to sign will help the market ‘recover.’”
Once the legislation is signed, I will take a closer look at it and what the reputable analysts have to say about its potential effects.