Happy New Year!

Posted by: Peter Coy on December 28, 2007

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Happy, that is, if you’re a renter who’s looking to buy. Evidence is mounting that prices will continue to fall substantially in 2008. Think of it this way: When demand for something (champagne, houses) declines, either the price must decline, or the supply must decline, or a little of both. So far in this housing bust, most of the action has been on the supply side. Builders have slashed production by close to 50%. But existing homes don’t go away, so the supply of them remains oversized.

So the only thing left to give is prices. Sure, the price declines to date may seem big (the S&P/Case-Shiller 10-City Home Price Index fell 6.7% from October 2006 through October 2007, the biggest decline in the series’ two-decade history). But they really aren’t that big considering how prices rose so rapidly for so long. Even at these levels, prices are too high for the average buyer. I think predictions of another 10% decline in 2008 and 2009 aren’t out of line at all. Prices could fall even more. Not rapidly. More like a deadly drip, drip, drip.

As I said: Happy New Year!

Reader Comments

Sing Expat

December 30, 2007 10:53 PM

Hooray! I am shameless in cheering the crash. Don't bore me with tales of woe involving single moms losing their homes (and their SUV's, plasma tv's, Ipods, PS2's, etc.). Bring prices back to reality. And, please bear in mind that in order for prices to return to long-term salary/price ratios, they must dip BELOW the long-term average! Bwahahaha! Affordable housing!

Greg

December 31, 2007 1:56 PM

Bottom line. The prices for a simple house is just to HIGH. The price has a long way downward to go. Folks you getting ripprd off. A house is not a dream, it`s a lot of work.

M Pierre

January 2, 2008 4:59 PM

Drip,Drip,Drip will follow the gushing sound heard once the financial calamity hits us in full stride. I think the word "decapitation" will be used a lot more than "drip". 50% correction plus a 5-10% overcorrection (from peak) is what all the long term charts are saying. Figure another 17-20 years (not corrected for inflation) before you see these prices again.

Brian R

January 6, 2008 10:48 PM

Peter, when you say that you "think predictions of another 10% decline in 2008 and 2009 aren’t out of line at all," do you mean a 10 percent decline each year, or a 10 percent decline total over those 2 years?

Peter Coy

January 7, 2008 4:17 PM

When I wrote that I was thinking of a total of 10% decline over two years, but I can also imagine prices falling 10% or more each year.

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About

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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