Key Factors Now: Job Losses, Historical Precedent
When it comes to predicting housing prices, I’m officially agnostic: in the short run, I have no idea what they’re going to do (and neither does anyone else).
In the long run, I’m on record forecasting that they’ll be higher: historically, at least, that’s been a very safe bet (sort of the housing equivalent of JP Morgan’s prediction about the stock market: ‘it will fluctuate’).
However, now that housing prices nationally have dropped about 30% from the peak, housing bears have been deprived of perhaps their biggest “gun”: the argument that housing prices are still above historical trendline — sometimes way above.
In fact, depending on the city, housing prices have reverted to levels prevailing in 2003, 2000 — or even earlier (take a look at Detroit or Cleveland).
So, what arguments do housing bears cite now when they predict future housing market deterioration? Two things:
1) Recession-driven job losses; and 2) historical precedent suggesting that housing markets rebound slowly — typically, much more slowly than the stock market, for example.
The first argument seems fair; the second, more in the spirit of “prediction by extrapolation.”
After all, very few prognosticators called the current market accurately by looking in the rear-view mirror.