Worst of U.S. housing slowdown over: WSJ poll

[cr]

This was on MSN.com today.

Here is the link.

I’m always skeptic of the NAR claiming news like this, but I don’t know what I think of the Wall Street Journal saying this.

On one hand it seems like the ignorant optimism is meeting the reality of the market, and on the other, they are only claiming a 0.5% decline. That seems like a joke.

Correct me if I am wrong, but the bottom line is income. If people can’t affford houses the prices will drop. Over the past several years people could “afford” only because money was temporarily cheap?

I’m just a neophyte, what do you experts think about this?

[VanMorrisonFan]

Cooprider14…read the whole article! The article stated that “bubble markets” (including Southern California) were poised for a greater fall.

The mistake is thinking that we have one real estate market in the U.S. We don’t. We have a whole bunch of them. The headline of the article doesn’t really apply to So. Cal.

[lindismith]

Here’s the full article from WSJ.com.

Is the Worst Over for the Housing Bust?
Economists Say ‘Yes’ in New WSJ.com Survey
But Their Views on Home Prices Vary Wildly
By PHIL IZZO
November 20, 2006; Page A2

The worst of the housing bust is over, economists said by nearly 2-to-1 in the latest WSJ.com economic forecasting survey. But they still predict that the average selling price of a house will fall next year.

After several years of double-digit percentage increase, housing prices stopped soaring this year. The 49 economists responding to the WSJ.com forecasting survey expect home prices, measured by the government’s Office of Federal Housing Enterprise Oversight index, to rise 2.8% this year and to fall by 0.5% next year. That contrasts with a 13.4% increase in 2005.

“We’re nearing the end of the slowdown for most markets,” said Ethan S. Harris at Lehman Brothers. Prices still have some ways to fall before they’ll stabilize, but there are signs that most drastic parts of the downturn – marked by a sharp pullback in demand and new construction – have run their course.

The economists’ predictions for home prices next year vary widely, from an increase of 7%, predicted by Kurt Karl and Arun Raha of Swiss Re, to a 10% decline, expected by Maury Harris of UBS. Mr. Harris, for his part, said he expects a large inventory of vacant newly constructed homes to push prices lower in the first half. Construction companies “built much more than were justified because of investor interest,” he said.

While 20 economists predicted home prices would rise next year, 24 forecast a decline. Just eight of the economists forecast gains greater than 2.1%, which is their average forecast for consumer-price inflation through mid-2007. The Ofheo index, which is closely watched by economists, has never posted a year-to-year decline.

Richard DeKaser, an economist at National City Corp., a big mortgage provider, said he thinks the worst is over. “We’re starting to see inventories topping out and possible declining,” he said. Mr. DeKaser forecast a 4.4% increase in prices this year and a 1.8% decline next.

The housing market, of course, doesn’t move uniformly across the country; some regions or individual cities often have price changes decidedly above or below the national average.

Mr. Harris of Lehman expects price declines next year to be confined to “bubble” markets, such as those in Florida, California and cities in Nevada and Arizona, where large numbers of investors have artificially inflated prices. “There’s no reason for prices to be falling in areas without a bubble,” he said. “People are just slowing down purchase decisions.”

Allen Sinai, at Decision Economics Inc., believes the worst of the bust is over, but he feels housing remains a big risk to the economy. The housing sector subtracted 1.1 percentage points from third-quarter gross domestic product, according to preliminary numbers from the U.S. Commerce Department.
ABOUT THE SURVEY

The Wall Street Journal surveys a group of more than 50 economists throughout the year. Broad surveys on more than 10 major economic indicators are conducted semiannually, at midyear and at year-end. Between each semiannual survey, four monthly updates are conducted for the most closely watched forecasts. This is the monthly survey for November. For prior installments of the semiannual and monthly surveys, see: WSJ.com/Economists.

The economists trimmed their forecasts for fourth-quarter economic growth: Their average estimate puts gross domestic product growth at a 2.3% rate in the fourth quarter, down from the 2.5% rate they forecast in the October survey. They expect growth to remain at that rate through the first half of 2007 and then to accelerate later in the year. On average, the economists predicted growth of 2.8% during the second half 2007. GDP is the broadest measure of economic output.

The housing slowdown is expected to hit consumer spending, but the “consumer won’t cave in and drive us into a recession,” said Mr. Sinai. Steady interest rates, controlled inflation, stabilizing energy prices and a solid jobs market will support the economy, he said.

Indeed, new data released Monday indicated that weakness in the housing sector is being offset by other areas of the economy. The Conference Board, an industry-backed research group based in New York, said its composite index of leading indicators for October rose by 0.2% to 138.3, in line with expectations. September’s reading was revised up to a 0.4% advance. The index is designed to predict activity in the three to six months ahead.

“People say all bubbles end in disaster, but this is a small bubble. Home prices are just about 20% too high. We need to take it seriously, but in the history of bubbles, this will go down as one of the smaller ones,” said Lehman’s Mr. Harris.

Among other findings in the survey:
• Economists expect a relatively happy holiday for retailers, forecasting a 5.1% rise in sales from last year.

• Some 57% expect Fed policy to be the biggest factor in the economy and markets over the next year, topping Iraq or the budget and tax legislation.

• Just eight of 56 economists expect the Federal Reserve to raise rates beyond the current 5.25% rate before June 2007.

• Economists expect just 107,000 new jobs a month over the next year, down from 109,800 forecast in October and 179,400 at the high for this year’s surveys, in February.

[BikeRider]

You don’t know what prices will do. It is possible that some people could just be trapped in their homes for years. They bought at the peak of the bubble, also took out a HELOC. So, they can’t lower their price without losing their shirts. I could see where many existing homes stay priced high and just never sell or get pulled off the market. And new home prices start dropping. Hopefully most people that bought homes in 2005/2006 plan to stay in them for a good while, or they are screwed. Also, they will have to deal with seeing friends purchase similar homes for much less money.

[davelj]

The other issue is this: Which of these economists spotted the Nasdaq Bubble? Few to none. If you didn’t identify the Nasdaq Bubble then I don’t trust you to identify ANY bubble properly. The Nasdaq Bubble was even more obvious than this RE bubble. You either understand bubbles or you don’t. Most people – including economists – don’t.

[4runner]

Also– when did the economists actually predict that a housing slowdown would actually happen? Didn’t most economists predict that the housing market would only move sideways? Now all of the sudden, they admit that we are in the middle of a “slowdown?”

[Anonymous]

And what incentive do any of these guys have to go out on a limb? Much safer to say that things will decline a slight 5%, or rise 1%, than predicting a 30% fall.

[sdcellar]

It would be interesting to see how accurate their past predictions have been since they conduct this survey on a regular basis.

[lindismith]

Do you guys want me to post some of the graphs and charts predicting the recession etc?

I could probably take screen shots of them, and make jpgs.
I was suprised at what they showed.

[Anonymous]

I am also wondering who was polled, economists? who/where etc. I think if you had asked the a broad group of economists about the stock market in late 2001, you may have heard the same type of comments. And they would have been wrong.

[lindismith]

[img_assist|nid=2111|title=Economists’ Confidence|desc=|link=node|align=left|width=100|height=67]

[Mexico Resident]

It’s difficult to respond to this article since it is a poll. There are few to no reasons or supporting data. It’s kind of like responding to David Lereah, you either agree or disagree but there is no discussion possible. I am becoming very suspicious of articles that go “so and so said such and such and he represents the NAR (or “economists” or “wall street” or etc)

[lindismith]

[img_assist|nid=2112|title=Housing Bust|desc=|link=node|align=left|width=100|height=71]

[lindismith]

[img_assist|nid=2113|title=Economists’ Confidence|desc=|link=node|align=left|width=100|height=68]

[sdcellar]

lindismith– Do they have graphs for what they predicted a year ago and how things turned out?

[Author]

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