I posted an analysis of Cagan’s paper a few months ago, and pointed out his errors. His biggest mistakes are 1) not understanding that the 2-3% of homeowners who sell set the price for the other 97% – 98% who don’t, and 2) that lenders track LTV, not CLTV, so 100% financing loans which are 80/20, are captured as having 20% equity (80% LTV, but 100% CLTV). If he would correct those two mistakes, his conclusions would be significantly different!
FormerSanDiegan, you are right on! I don’t actually put much credence into Cagan, because he made 2 major errors in an important reseach paper, which ended up misleading many people. Unless you spend hours every day researching this stuff as I do, you wouldn’t know it was complete spin. For the record, I predict our MLS inventory will rise above 50,000 in 3 years, and we will have tens of thousands of foreclosures in San Diego. I expect a banking collapse worse than in the 1990’s. It’s all corroborated in economist John Talbott’s book, Sell Now, a must-read for anyone contemplating whether they should own a house (advice: Sell NOW!).
