A gloomy forecast of where the US housing market is going at US News & World Report — Nowhere.
“Economist Celia Chen of Moody’s Economy.com has published a forecast suggesting that residential real estate could take 10 years to recover in most states-and 20 years in Florida and California.
Chen predicts that house prices will stop falling by the second quarter of 2010……..
By the time house prices stop falling, they’ll be down 43 percent from peak prices reached in 2006, as measured by the Case-Shiller home-price index.
That will mark the deepest housing correction since 1890, and probably ever in the United States (meaningful data go back only to the late 19th century)……….
Nationwide, price levels won’t regain the peaks of 2006 until 2020. In the worst-hit states, Florida and California, the rebound will take until 2030. Five other states won’t hit their 2006 peaks until after 2023. Anybody who doubts that it could take that long should consider the real estate bust in Japan, where prices are still down by half from the peaks they reached 15 years ago.
Other states, mainly those where the housing boom was muted, will bounce back faster. Homes in Texas, Oklahoma, and a handful of southern and Farm Belt states could regain peak prices within seven years, after falling by less than 10 percent.“
My Comment
The article goes on to point out, correctly, that housing takes up about 17% of the economy, so a prolonged Japanese-type slump makes any kind of “green shoot” being hyped today more likely to be astro-turf than lawn.
Actually, housing takes up more than 17% of the economy. If you factor in all the related services, from construction to home furnishings to financing, it probably takes up between 30%-40% of the economy.
Add to that the ongoing slump in commercial real estate, world-over, and you can see why some of us are legging it.
Some anecdotal evidence:
I spoke to an Indian management consultant recently. He’d just returned from visits to China and Cambodia and was extremely pessimistic about the prospects for real estate recovery there economic recovery in China. He suggested a mark-down of about 40% from current prices.
Offices are sitting vacant everywhere. Traveling in the north of Morocco in 2008, I visited one of the hot-spots of investment – the coast from Tangier to Tetuane. Hotels and apartment complexes were springing up on every available expanse of beach. But a businessman who was involved in exporting and importing clothes (from China) and semi-precious stones (from India) was skeptical. He said a lot of the residential boom there was tied up with the government’s effort to develop tourism and some of it was driven by drug money in search of a place to hide. Business, he said was not so good. He’d been trying to sell a warehouse for over a year, and despite a 15% markdown, had found no takers. He showed me a warehouse full of inexpensive women’s clothes, suits for $4-$5, made in China.
There were no buyers to be had. He was even thinking of shipping them to the US, because shipping costs had fallen so low. At least in the US, he said, you could find a market….
Everything, it seems, depends on the American consumer….
Its probably cliche to point out that the same people who are predicting a particular bottom, peak or time of recovery are the same folks who thought the rise in prices would go forever. Classic manipulaton–point out the obvious and then provide a positive outlook even if it is some time off. Think about it-this technique is what keep people calm or in their jobs–stay in your mind numbing job and in a couple of years you can get a raise and wow–your vacation time will be increased from two weeks (paid time off so it includes sick days all in one handy adminstrative package) to an additional day for each year you work. Oh the upper management are different. Oh we will have green shoots its all going to be allright. Guess the possibility of the end of progress, entropy or muddling along a lot poorer than we thought is too horrifying to contemplate–many in the west have trouble contemplating sickeness, old age or a non corporate mediated reality. Its always a lot worse than what the approved spokespeole say. Also, as an economist I can say–we as a group be base our prognostications on models of reality and where do you think that leads………
Very true.
It’s also the case, psychologically, that we are hugely influenced by what is…by history.
And history can be misleading, although, at the same time, it’s something you need to know.
The psychological tendency to extrapolate from the present into the future, the unreliability of mathematical modeling of something as dynamic as the economy, the failure to take into account the intervention of the observer on what he observes – which relates to the Heisenberg principle…
all this means, experts tend to be way off in their predictions, if they confine themselves to the superficial data available from statistics.
Far more reliable is knowing the history and motivations of the elite groups that manipulate the political scene
I think it’s important to understand and discount the impact of media. So much of this is nothing more than too many media outlets vying to be heard. It’s noise.
So what does a prudent person do? She turns the volume down. She learns to process data quickly, screen it and immediately discard that which does not add value.
So many bloggers who started out as incredibly valuable sources of data (Denninger, for example) have been consumed by the very media they detest. Hardly a day goes by now where he does not play a verbal Don Quixote to CNBC’s windmill.
It’s important to understand that we all carry psychological biases. In his book “Behavioral Finance and Wealth Management’, Michael Pompian does a masterful job of explaining them. One of them is what is called Optimism Bias.
Fascinating stuff.