May 26, 2008

Shiller Believes Home Prices to Continue to Drop

Yale economist Robert Shiller believes that housing prices will slip below the historic drop during the great depression. The average home for sale dropped 30% during the depression and we have already seen a 15% decline beginning in 2008.

Of course there are different views out there, but he is the guy who coined the phrase "irrational Exuberance" and picked the peak of the last bubble - the internet boom to bust of the late 1990's. Most people were not paying attention then either and finally the bubble collapsed. That bubble caused Nasadaq to lose 85% of its value from peak to trough. All these years later we are only about half way back from that great decline.

Consider that the new programs designed to buy back mortgages and renegotiate them down to a level that keeps families in their homes has two drawbacks.
When these mortgages are re evaluated downwards thats is actually a price reduction. The home is devalued and that number will never show up on an index. The housing drop will in fact be worse than measured.

According to NAR's economist, Lawrence Yun "The unusual mix of market conditions around the country continues, but areas showing healthy price gains include Greenville, S.C., and Springfield, Mo., both with solid local economies. “On the other hand, some markets like San Diego, Calif., and Fort Myers, Fla., are experiencing rising sales after sudden double-digit drops in local home prices, so lower prices and low interest rates are starting to generate results.”

My guess is that we have a few more shocks before all this stabilizes and then we will see a change in perception. Real estate will no longer be a ticket to great and immediate wealth. That will be left to something else.

Thanks for Reading
Howard Bell
A web site of over 450 articles related to real estate focused primarily on property management.

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