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Finance & Stock Groups Forum Index » Real Estate » WSJ: Economists Predict Home Prices Will Bottom Next Year
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 Posted: Wed Oct 29, 2008 9:47 pm |
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HOUSE TALK
Wall Street Journal
OCTOBER 29, 2008, 10:21 A.M. ET
Economists Predict Home Prices Will Bottom Next Year
By JUNE FLETCHER
When will housing's sickening slide stop?
According to economists at the semi-annual National Association of
Home Builders forecast conference, not soon—though the end is in
sight. The consensus: Home prices will bottom out as early as the
middle of next year.
I've been attending these conferences for years, and last spring's was
the gloomiest I'd ever attended. The latest conference, held last
week, was also downbeat, but with a glimmer of hope--many of the
economists seemed optimistic that the government's bailout plan, which
includes buying toxic mortgage debt, will lead to housing's recovery.
More affordable prices, pent-up demand, incentives on new homes, fewer
housing starts and expected declines in interest rates for fixed-rate
mortgages also should help ease the crisis, said David Seiders, chief
economist of the trade group.
Although all of the economists agreed that we are in a recession--
despite lack of official government confirmation--and have been for
many months, several characterized the current financial turmoil as an
overreaction, given the country's narrowing trade gap and
strengthening dollar. "I'm hopeful that the markets will come to their
senses soon," said Michael Moran, chief economist for Daiwa Securities
America.
But even if the stock market bounces back, don't expect housing to
rally right away. The forecasters pointed out numerous factors that
are likely to drag out housing's convalescence: Unemployment is
currently at 6.1%, compared with 4.4% last year, and it is projected
by some to reach 8% next year. Home prices have already tumbled 20%
from their peak three years ago, and will probably sink another 10%
before stabilizing. Some 12 million homeowners currently owe more on
their mortgages than the houses are worth, meaning more foreclosures
and a drop in the already-weakening homeownership rate. And bloated
supply will continue to outpace demand in most parts of the country
for another year or two.
As terrible as this is for people who have lost or will lose their
homes, overall, this painful contraction is necessary—a counterbalance
to the era of easy money and over-leveraging. When it is over, homes
won't be worth as much as they were before, but their prices will be
more in line with people's incomes. Loans won't be given to everyone
with a pulse, but they will be available to people with good credit.
The market will be back to normal.
Perhaps by then we'll have learned some lessons: Just because someone
is offering to loan you money doesn't mean you should take it. Don't
assume lenders and regulators will look after your interests. Before
you sign a contract, read the fine print. Since neither job security
nor rising equity is guaranteed, stick with fixed-rate loans. Don't
live beyond your means. Pay your bills on time, and keep enough cash
on hand to pay for at least six months of expenses. Think of your
house primarily as shelter, not a cash machine.
And finally, don't despair. Remember that markets are cyclical; the
bigger the binge, the worse the hangover. We'll have to suffer this
one for months or even years to come. But if we learn not to over-
indulge, we'll all wind up healthier in the long run.
http://online.wsj.com/article/SB122522301876377101.html |
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