Today in our beloved Boston Globe the following story was published regarding remarks by Robert Shiller: Economist: Housing slide may last years. That same day on Boston.com this was published: Forecast: Upturn ahead for NE economy. These contained opposite predictions for the Massachusetts housing market, which is a topic near and dear to my heart since I plan on moving into a house in 14 months.
Let's start with the optimistic forecast from the New England Economic Partnership, a nonprofit forecast group:
New England's current housing price decline is to reach its steepest point during the current quarter, with prices continuing to fall through next year's second quarter. Economists then expect a slow, modest housing recovery, with the region's median price expected to fall 10 percent from the pre-slump peak to the downturn's low point.
And now with Robert Shiller's grimmer view at the national level:
Robert Shiller, a Yale University economist and codeveloper of Standard & Poor's S&P/Case-Shiller Home Price indexes, said declines in home values in the most vulnerable markets could double the losses recorded thus far.
What's more, Shiller, who is also cofounder and chief economist of the financial firm MacroMarkets LLC, said predictions for a bottom within the next year or so are probably wrong, with price declines in 2008 possibly worse than those seen this year.
"There is a probability of a continuing decline for a period of years, bringing prices in many cities down in the 10s of percent," Shiller said.
"The bottom is hard to predict," he said. "I do not see it imminent, and it could be five or 10 years, too."Shiller is noted for having correctly predicted the end of the dotcom boom in 2000 in his book "Irrational Exuberance." The NEEP on the other hand, lists some press responses to its past housing market predictions on its website:
"Housing forecast: downturn until '07"
|"Home Prices seem set for modest fall "|
Jay Fitzgerald, Boston Herald, November 10, 2005
Well, we all know how the housing forecast showing a modest fall and a recovery in 2007 has gone. Somehow I place more faith in Shiller's forecast than NEEP's, based on past track records.
Here's my prediction, completely devoid of economic credentials other than paying attention to the news: housing prices will fall for at least the coming year. Why?
- The foreclosure and subprime mortgage crisis will be worse in 2008 since the bulk of the bad loans won't reset their rates til 2008.
- Record home heating oil prices will financially break a lot of people, especially combined with resetting ARMs.
- Due to heating oil, huge poorly built, underinsulated McMansions will come out of vogue, affecting the higher end of the market.
- Freddie Mac and Fannie Mae will only buy non-jumbo loans, under $417,000, which means that buyers looking under that rate will have an easier time getting mortgages, giving sellers an incentive to sell their homes for under that level, depressing prices in the mid-range of the market.