Home Prices Will Fall Further

January 1st, 2011
in Op Ed

by John Lounsbury

Global Economic Intersection authors have provided analysis of housing market data as it has unfolded (see Related Articles, end of this post) and there is some additional expert analysis and opinion by others that will be mentioned in this Op Ed.  We will be providing more analysis of the factors effecting the housing market in the coming days and weeks, but today it seems a good time to summarize our general opinion in this area.

Follow up:

Even with gradual improvement in the economy overall, housing remains in the doldrums and a new price trend down clearly been established.  The father of housing market tracking, Prof. Robert Shilling of Yale, has become very pessimistic, as this excerpt from Business Insider indicates:

Housing guru Robert Shiller says the decline in October's Case-Shiller house-price index was much worse than expected (over 10% annualized).  He also says that if house prices keep falling this fast, the economy will face "serious reasons to worry" (which, for Professor Shiller, is an apocalyptic statement).

6 of the 20 cities in the index have now hit new lows, below the lows reached in 2009 before the "recovery" in house prices.  In several cities, prices are back to where they were 10 years ago.  If prices continue to fall at this rate, Shiller expects the panicked Congress will issue another home-buyer tax credit or other emergency measure to stop the fall, despite the fact that it's an unfair gift of taxpayer money from renters to home-buyers and homeowners. When the ship is sinking this fast, Shiller says, you do what you have to do.

Gary Shilling, head of A. Gary Shilling & Co, has 27 graph slide show that gives strong evidence to support his projection that house prices have another 20% to fall, on average, across the country.  As you flip through the graphs, you may become depressed with the overwhelming weight of data showing how far the housing market has been distorted by the bubble years and how far it still has to decline to reach historical averages.  Peter Schiff agrees:  Home prices have another 20% to fall.  If you need still more data, visit Housing Story, the excellent web site run by real estate expert Michael David White.

In the adventurous (and for entertainment purposes only) GEI predictions for 2011, an average housing price decline across the U.S. of 5% was estimated.  This is pretty tame compared to what some others are projecting.  The negative projections are influenced to a great extent by the expectation of a continuation of a flood of foreclosed homes coming to market and a tepid improvement in employment.

However, not all projections are negative.  Five of seven participants in the Bespoke Roundtable predicted higher home prices for 2011.  And Tom Lawler is forecasting a significant improvement in housing starts and new home sales in the second half of 2011.  These things are what make a horse race.


Related Articles





Where is the Bottom in Housing?  We May Not Know for Years by John Lounsbury

Existing Home Sales Likely Improved in November 2010 by Steven Hansen


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