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Worse Than Expected. Again

Posted by: Peter Coy on October 22, 2007

The news today about slumping sales of existing homes was awful. But it should not have come as a surprise, says Ian Shepherdson of High-Frequency Economics in Valhalla, N.Y., who has been proven correct month after month in his bearish forecasts for the housing market.

I just received a piece from Shepherdson in which he writes:

[M]any forecasters’ unwillingness to believe the evidence before their eyes—perhaps because nearly everyone making forecasts of the U.S. housing market is long and leveraged in said market; just a thought—meant the consensus was substantially undershot. Again.

In case you haven’t heard, sales of existing homes fell 8% in September to an annual pace of barely over 5 million. The supply of existing homes for sale, at the current rate of sales, rose to a record 10.5 months’ worth, implying more trouble ahead. The median single-family home price was down 4.9% from a year earlier. Shepherdson predicts that by next spring, the year-over-year price decline will be nearer 10%.

There’s no question that most economists and other observers (I include myself) underestimated how bad the housing crash was going to be. It’s fascinating to consider Shepherdson’s conjecture that forecasters were fooled because they own homes themselves and didn’t want to think bad thoughts.

Calling all apartment-dwelling housing analysts!

Reader Comments


October 24, 2007 5:18 PM

I am not paid to think or talk about housing, but I do rent my apartment, and I pay a lot of attention to real estate in Boston.

I have to say, among smart people I know, those who own houses are a great deal less likely to admit what's going on around them.

Most take a "older sibling" tone of voice when talking to people (like me) who are real estate junkies, but not house owners.

"You'll understand how it made sense to buy now, at the peak, when you're in up to your neck, like me", they seem to think. Money-renters, is how I think of them, although I'm too polite to say that out loud.

Really, even people who I though were actually paying attention to the market and the economy: an MBA, an econ major just got swept up in the mania, and bought very expensive houses in the last year, even as the real estate/financial industry edifice had started to visibly and audibly crumble.

I don't get it.

I want to buy a house, but I don't want my hard-earned and hard-saved down payment to evaporate over the next 5 years, and be left with no equity, right when I need to/want to move up.

Just me

October 24, 2007 6:44 PM

Homes have been overvalued for about 8-10 years. Why such a big surprise? Sellers should reduce asking prices's for 25-30% and people will star buying !!


October 24, 2007 8:02 PM

Well, stock analysts have to disclose if they own or short what they are recommending -- shouldn't economists/commentators have to make similar disclosures when discussing housing? It would certainly clarify things; separate the cheerleading from the economics.

Jackie Lange

November 6, 2007 11:30 PM

And you ain't seen nothin' yet!

Banks have taken back a record number of properties this year ( REO's). They are just now getting the tax bill for all those houses and the taxes have to be paid by the end of January 2008 in most areas.

They will start dumping houses to avoid paying taxes and to make room for the hundreds of thousands of foreclosures they will add to their inventory in 2008.

We have not seen the bottom yet! I thoroughy anticipate another TWO years of dropping prices and increases in inventory.

What does that mean to someone who needs to sell now?

It will be just about impossible to sell to a retail buyer who can get a new loan.

Even if your payments are current and your house is perfect, all the foreclosures all around you will definitely affect the price and the marketablity of your house.

If you MUST sell, the only solution is to sell with seller financing. It is better to get monthly payments paid in to you verson paying them OUT on a vacant house for months and months.

Jackie Lange

Captain Burnout

November 29, 2007 7:00 PM

I just sold a townhome in Northern Virginia. I had to change realtors from a very nice guy who didn't "get it" to an experienced bear marketer who said "price it here to sell it."

I did not lose money from the date of purchase. I dropped my asking price $95K to sell it though.

The market decides, not you.

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BusinessWeek editors Chris Palmeri, Prashant Gopal and Peter Coy chronicle the highs and lows of the housing and mortgage markets on their Hot Property blog. In print and online, the Hot Property team first wrote about the potential downside of lenders pushing riskier, "option ARM" mortgages and the rise in mortgage fraud back in 2005—well ahead of many other media outlets. In 2008, Hot Property bloggers finished #1 in a ranking of the world's top 100 "most powerful property people" by the British real estate website Global edge. Hot Property was named among the 25 most influential real estate blogs of 2007 by Inman News.

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