Predicting The Market Landing
(After months of falling home prices and rapidly declining sales, there is no debate that the housing market is falling, or at least slowing from its "booming" days which lasted for the previous five years.)
Well, now there's a new debate over just how hard the market is going to land or crash.
Forbes.com writer, Lacey Rose, attempts to answer this debate in her September 8, 2006 article, "How Low Will Real Estate Go?"
Worrying about how fast you can flip you new property into a quick profitable sale is a distant, luxurious concern for real estate investors. Now, especially if these flippers got caught owning multiple properties, the concern is how hard will the market land and what will the end effect be.
Remember, we are not stuck in a bad market; it is simply trying to complete the cycle and correct itself. The market grew faster and greater than originally anticipated, now how low will it go. Predictions are mixed.
To further the panic of investors, recent negative figures were released by homebuilders, federal agencies and the National Association of Realtors (NAR).
"On Aug. 22, luxury home builder Toll Bros. (nyse: TOL - news - people ) announced that its net income fell 19% in the quarter ending July 31 from a year prior. Earlier in the month, the company said new orders had fallen 47%. According to NAR, the number of existing home sales plunged 4.1% in July to a seasonally adjusted annual rate of 6.3 million, the lowest since January 2004. Nationwide, the median sales price for an existing single-family home inched up a painfully small 0.9% compared to double-digits in 2005."
The anxiety is not a direct result of today's figures, but rather future predictions of sic months, next year and five years down the road.
"'One possibility is that you get a quick return to normal, which is what the economists for the realtor groups tend to hope for,' said Edward Leamer, director of the UCLA Anderson Forecast. 'But there's nothing in the historical record that suggests that we're going to get a return to normal anytime soon.'"
Leamer added that there are two basic possibilities: the down fall of the market will either be steep and quick or less drastic but longer. Leamer leans towards the latter. Neither scenario is better for current property owners, while future investors would rather the market take a big hit and have it end quickly so they can swoop up on cheap property.
"Not surprisingly, Lawrence Yun, a senior economist for NAR, is more optimistic. He claims that the market has returned to more earthly figures after a period of unsustainable growth. 'Any decline will be very short-lived,' he said. 'By the spring of 2007, the market will begin to see increased sales and strengthening in home prices.'"
No one can really predict the future market, only speculate. Future employment and other economic factors will change and contribute to the real estate market as well.
If you are one who needs to rely on economist's predictions for your neighboring area, there was some research done on major U.S. cities.
"To get a sense of how home prices will perform in various parts of the U.S., we turned to Moody's Economy.com for historic and predicted median home prices in 15 major metropolitan areas. We looked back ten years and forward another ten. The results show several cities, including Boston, New York and Washington, D.C., experiencing ups and downs (more precisely, downs and ups) in coming years--a boon for buyers, perhaps, but not for current owners. Other places, such as Houston and Minneapolis-St. Paul, may just keep chugging along."