“Most Americans have not experienced any significant decline in the value of their homes — nor are they likely to.”

You know how the housing market is crushing everyone across the land? These guys say it’s really not that bad:

We conclude that declines in house prices are highly likely to remain small. Our analysis reveals, unsurprisingly, that foreclosures and home prices have negative effects on each other over time, but this does not imply a vicious cycle of collapsing prices. Our models predict that as foreclosures continue to climb in many states, house prices will remain flat or decline in those states — but will not collapse.
One reason for this is that the effect of foreclosure shocks on house prices is small. Furthermore, other fundamental factors (such as employment growth and a slowing of the growth of the housing supply over the past year and a half) will cushion the impact of foreclosures.
We constructed several forecasting models. Even under an extreme worst-case scenario for foreclosures, our conclusion was that U.S. house prices just aren’t going to fall by very much in the next two years. In our worst-case scenario, the average cumulative decline is about 5 percent, and only 12 states experience declines greater than 6 percent by the end of 2009.

They criticize the Case-Schiller data as being skewed toward poor-performing areas, and that it’s weighted by value which also gives greater say to overpriced homes.

Posted by on August 4th, 2008 at 11:42 am


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