Resale Home Prices Are Likely to Fall in Many Markets.

Comments

• carlislematthew

  July 2007

  "Well, if you think prices are going to fall anywhere near as far as the data in the link suggests they should, then you're sorely mistaken."
  
  Right, because they only have data, historical trends and analysis on their side. The rest of us have opinion and thoughts that originate in our guts, and your gut tells you their analysis is wrong.
  
  My gut tells me that Seattle will see a 22.1% decline (in real, inflation adjusted terms) over exactly 38 months and 3 days.
• deejayoh

  July 2007

  Beth -
  I saw that analysis - thanks for posting it here. I think John Burns is a pretty smart analyst. His intro basically says what you are saying:
  

  We calculated how much prices would have to fall for housing costs (including mortgage payments, property taxes and down payments) to return to each market's typical ratio of housing costs / income. We identified 10 markets where prices will have to fall 30% or more to return to its normal ratio, and another 31 markets that are clearly overpriced. The most likely scenario in these markets is that resale prices will fall, but not as much as we calculated, unless something terrible happens like mortgage rates spike or the economy enters a prolonged recession.

  
  I tend to agree. Prices will fall, but not to the extent many are predicting.
  
  His take on some common "Myths" is interesting as well..
  

  Attacking The Supply Constraint Myth: We agree that many "overpriced" markets become permanently more expensive every year because of their desirability as a place to live and their supply constraints, so it is unreasonable to suggest that they will return to their long-term housing cost ratios. Miami, Los Angeles, Orange County, Seattle and Portland would certainly be considered among these markets. This doesn't mean these markets are insulated from corrections, however. Historically, supply-constrained markets such as Boston and New York have had very severe corrections during housing downturns. If these supply-constrained markets just return to the prices of early 2005, a steep correction is coming.
  
  Attacking The Unprecedented Price Decline Myth: We agree that a 25% or more decline in resale home prices is unlikely, especially if interest rates don't change much and the economy continues to grow. Helping matters is the fact that household incomes increase every year. However, a significant price correction is not entirely out of the question in the many markets where the following two statements are true:
  

  New home builders have already dropped prices (including incentives) 20% below where they would have been selling these homes two years ago, and 20% decline in price would only be a return to the prices of early 2005