A month ago "economists" were predicting housing prices would flatten. Here comes a report from Moody's that predicts 10% drops over the next few years, and back-to-back reports that people are spending an increasing amount of their household budget on housing at a time when household incomes are not rising.
People are focused too much on their house and too little on their retirement savings. Eventually the cost of housing is going to catch up them. My guess is that the drops will be even larger because the numbers dont reflect the drops that have already occurred due to "incentives". Especially if the cost of borrowing increases.
The Shifting Calculus Of Buying a House
Report Predicts Price Declines In 100 U.S. Cities Over Next Few Years; Sitting Tight in Brooklyn
October 5, 2006
Home buyers have another reason to sit on their hands.
In the latest news from the slumping U.S. housing market, a report released this week says that median house prices are likely to decline more than 10% over the next few years in 20 metro areas, including Las Vegas, Tucson, Ariz., and Washington, D.C.
The study comes on the heels of a survey from the U.S. Census Bureau showing that 35% of American homeowners with mortgages last year spent 30% or more of their household income on housing costs, including loan payments, real-estate taxes, insurance and utilities. In 2003, a similar survey found that 30% of such homeowners were spending that much on housing. The new survey illustrates the strain on household budgets that has already helped slow house-price increases in some areas and push them modestly lower in others.
While various studies generally agree that some of the biggest risks of declines are in California and Florida, there are striking differences, reflecting different forecasting methods. For instance, a recent "risk index" study published by PMI Mortgage Insurance Co. ranks the Boston metro area as the seventh-riskiest in the nation in terms of the likelihood of price declines over the next two years. But Economy.com says that home prices in Boston likely bottomed out in this year's third quarter after a modest 2.2% decline.
No study, of course, can tell exactly how bad the market will get or when it will hit bottom. Even if accurate, a prediction for a metro area won't hold true for all neighborhoods or all types of housing.
The good news, according to Economy.com's chief economist, Mark Zandi, is that the current downturn so far looks more like a correction than a crash on a national scale, slowing economic growth but not tipping the economy into a recession. The bad news is that falling prices could be very painful for some people who have bought homes near peak levels over the past year or so in such areas as California, Arizona, Nevada, Florida, Washington, D.C., and the coastal Northeast.
