The Housing Market Exposed
(Everyone is now not in disagreement that the housing market is slow, we have all agreed upon that unfortunate fact.)
Now people just want to know how slow the market is going to get and what effects it is going to have on our economy.
Everyone seems to be at odds with just how bad things are going to get, but we have one man that has a lot of the answers.
It seems like we are at a time when just about everyone thinks they are an expert on the real estate and housing markets, when they really have no idea what they are talking about. It is refreshing to hear an informed professional’s opinion on our housing market amidst all of the charlatans out there.
But we must remember that the market is completely unpredictable, and we could only see the future if we had a crystal ball. Now wouldn’t that be nice.
A September 28, 2006 article written by Daniel McGinn of Newsweek, “How far will real estate drop,” is a Q&A with noted economist and real-estate researcher Karl Case looks to shed some light upon our confusing market.
“For people who've spent the last five years holding forth about the unsustainable housing bubble, this week brought long-awaited news. While home sales have been slowing for months, prices had been holding steady—until now.”
Kase explains that the price drops that we have seen lately were a long time coming.
“It's been an incredible run. If you go back 30 years, we've had two prolonged, steadily increasing price periods—from 1983 to 1988, then from 1994 until now. Prices have gone up enormously. The fact that the market is finally encountering some resistance is hardly surprising.”
Kase also discusses how people always feel more wealthy when their home values are rising, and thus tend to spend more.
This is why the declining value of homes could have a large effect on not only the real estate world, but on consumer spending as well.
“We found there's a positive and significant wealth effect from rising home values. [But] a declining housing market doesn't seem to have an effect—it's asymmetric. On the way up, people tend to spend more, then they keep spending even when prices go down. [But there's also] an income effect that results from the decline in income being generated by the real estate sector. Right now I think that's our biggest problem. My worry is that in the spring of next year, there's going to be a significant decline in employment among real-estate agents and brokers and mortgage bankers ... The people who sold them restaurant meals and cars when they were doing well are not doing the same business, and then they lose money. It's a multiplier.”
So although no one knows the exact effect of the downturn on our overall economy, the slowdown was definitely a long time coming. We can only wait to see what exactly is going to happen.
“I think we'll see declines in volumes that will be very painful. I don't think we'll see a huge crash in prices, but prices will go down. If prices went down more than 15 percent, that'd be a big bang. That's about what happened in New England last time. If that happens and we ride it out, we're going to be fine.”
