Home Prices Stabilizing?
"The floor beneath home prices might be wobbly but it is unlikely to collapse." Thus saith the Wall Street Journal. But what could this claim possibly mean?
First of all, the WSJ has been saying that home prices are stabilizing for the last two years. On a national average they're now down around 36%. Second of all, saying that home prices are unlikely to "collapse" sets up a straw man: who said they were going to collapse? And just because they're not going to collapse, is that good news?
I suspect what they wanted to say was simply that they believe home prices aren't going down anymore. There, that's clear. But is it true?
For evidence, they cite both a slowing of price declines as well as a couple of price increases. But, let's face it, how does that establish enough of a pattern to turn around a down trend that began around 2006 - just about four years ago.
We have to face the fact that this down trend in housing is the worst since the Great Depression. When an item goes down hard and long, it takes effort to first stop the downward trend, and then it takes effort to start it going back up again.
Right now, we're still in the first phase. There's still pressure pressing down on home prices. Factors include increasing foreclosures - with more anticipated through 2011. Will these put additional pressure on existing home prices? We'll find out.
Here are some additional considerations.
The downturn occurred after what may have been the greatest housing bubble in American history. When such a bubble bursts, you have to expect a violent reaction - exactly what we got.
It was mind-boggling to hear initial commentary downplay the situation as it became apparent (or should have been apparent) to just about everyone that real estate was in trouble in 2006. Such comments displayed complete ignorance of the extent of the real estate bubble that was in the process of deflating or, you might more accurately say, bursting.
Now, this doesn't mean that we will for sure experience additional declines in real estate. After four years, and an average 36% decline, real estate has certainly taken it on the chin. But the point is that, given the high level to which it was inflated, it would be prudent to withhold judgment until we have pretty compelling evidence that the downturn has stopped.
The other consideration would be the possibility that real estate, once prices do stabilize, they may just sit around for a while. In the Great Depression, for example, real estate prices in some locations stayed flat for almost 20 years.
Is it possible that real estate prices will not, in fact, begin to rise from their lows for a long time? I'd like to know why not? I'm not saying they won't. I'm simply saying that there is certainly precedent for this occurring.
In addition, you have to consider that real estate prices may go up in some places, and stay flat for time in others. A possible example would be that real estate geared towards the rich may turn up while real estate in middle class neighborhoods stays flat. The reason for this could be that, as long as unemployment remains high, that could more affect middle class families, while the rich could start buying up real estate again.
Conclusion: It makes no sense to start calling for any long-term trend that's anything but down right now. We're still in a downdraft until proven otherwise. And it'll take some more dramatic numbers over some longer period of time before we can be sure we're out of the woods yet.
It's not a matter of being "negative" about this. It's simply better to look at what's real and make decisions based on that, rather than engage in wishful thinking.
House pricing stabilizing? Probably not yet.
First of all, the WSJ has been saying that home prices are stabilizing for the last two years. On a national average they're now down around 36%. Second of all, saying that home prices are unlikely to "collapse" sets up a straw man: who said they were going to collapse? And just because they're not going to collapse, is that good news?
I suspect what they wanted to say was simply that they believe home prices aren't going down anymore. There, that's clear. But is it true?
For evidence, they cite both a slowing of price declines as well as a couple of price increases. But, let's face it, how does that establish enough of a pattern to turn around a down trend that began around 2006 - just about four years ago.
We have to face the fact that this down trend in housing is the worst since the Great Depression. When an item goes down hard and long, it takes effort to first stop the downward trend, and then it takes effort to start it going back up again.
Right now, we're still in the first phase. There's still pressure pressing down on home prices. Factors include increasing foreclosures - with more anticipated through 2011. Will these put additional pressure on existing home prices? We'll find out.
Here are some additional considerations.
The downturn occurred after what may have been the greatest housing bubble in American history. When such a bubble bursts, you have to expect a violent reaction - exactly what we got.
It was mind-boggling to hear initial commentary downplay the situation as it became apparent (or should have been apparent) to just about everyone that real estate was in trouble in 2006. Such comments displayed complete ignorance of the extent of the real estate bubble that was in the process of deflating or, you might more accurately say, bursting.
Now, this doesn't mean that we will for sure experience additional declines in real estate. After four years, and an average 36% decline, real estate has certainly taken it on the chin. But the point is that, given the high level to which it was inflated, it would be prudent to withhold judgment until we have pretty compelling evidence that the downturn has stopped.
The other consideration would be the possibility that real estate, once prices do stabilize, they may just sit around for a while. In the Great Depression, for example, real estate prices in some locations stayed flat for almost 20 years.
Is it possible that real estate prices will not, in fact, begin to rise from their lows for a long time? I'd like to know why not? I'm not saying they won't. I'm simply saying that there is certainly precedent for this occurring.
In addition, you have to consider that real estate prices may go up in some places, and stay flat for time in others. A possible example would be that real estate geared towards the rich may turn up while real estate in middle class neighborhoods stays flat. The reason for this could be that, as long as unemployment remains high, that could more affect middle class families, while the rich could start buying up real estate again.
Conclusion: It makes no sense to start calling for any long-term trend that's anything but down right now. We're still in a downdraft until proven otherwise. And it'll take some more dramatic numbers over some longer period of time before we can be sure we're out of the woods yet.
It's not a matter of being "negative" about this. It's simply better to look at what's real and make decisions based on that, rather than engage in wishful thinking.
House pricing stabilizing? Probably not yet.
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