I think it is healthy to stay on top of the real estate market and pay attention to what is being said and talked about in the news media, in real estate circles, by real estate professionals, etc. No one knows what is going to happen in the next year or so in the real estate market. Anyone who says they do know should be ignored; because, short of having a cystal ball, how could anyone know, it’s the future. Having said that, here is an interesting perspective on where the real estate market may or may not be heading.
Economists: Housing Declines to Remain Small
A team of economists who created a variety of forecasting models concludes that predictions of further large housing price declines are greatly overblown.
They point to the house price index of the Office of Federal Housing Enterprise as most reflective of reality. Its data reveals that only four states — Arizona, California, Florida, and Nevada — have had declines of more than 4 percent in home prices over the past year.
These economists, including professors from Columbia University and from the Center for Real Estate at Wichita State University in Kansas, discount more drastic figures from the Standard & Poor’s/Case-Shiller housing price index. They say this index is faulty because it doesn’t include data from 13 states and offers only partial coverage of 29 others, making its results an inaccurate reflection of middle-market homeownership.
Using a model constructed from the OFHEO price index, foreclosures, home sales, permits and employment, the economic team concluded that declines in house prices are highly likely to remain small.
“Our analysis reveals, unsurprisingly, that foreclosures and home prices have negative effects on each other over time, but this does not imply a vicious cycle of collapsing prices. Our models predict that as foreclosures continue to climb in many states, house prices will remain flat or decline in those states — but will not collapse.
“One reason for this is that the effect of foreclosure shocks on house prices is small. Furthermore, other fundamental factors (such as employment growth and a slowing of the growth of the housing supply over the past year and a half) will cushion the impact of foreclosures,� the economic team said.
Source: The Washington Post, Charles W. Calomiris, Stanley D. Longhofer and William Miles (08/04/08)
Posted By Carter Brown
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