The only thing we know about the future of the housing market right now is that we don't know anything
Are home prices at the bottom, near the bottom, or far from the bottom? Will sales pick up later this year, next year, or in a decade? When will defaults slow to a trickle? The answers to these questions depend on who you ask. The truth is that nobody really knows. In fact, no one has a clue.
This point became quite clear on Thursday at a housing conference where Robert Shiller, Yale economist and co-creator of the much-cited S&P/Case-Shiller Home Price Index, spoke about the uncertainty plaguing the market. Diana Olick at CNBC reports him saying:
Statisticians deal with things that repeat themselves. This housing boom and bust is so historic and unprecedented, you can't forecast the future because you have no comparison.
Of course, that didn't stop Shiller from making broad statements about things that wouldn't surprise him. Reuters reports him also saying:
"My gut feeling is we might see a continuation of the decline" in home prices, Shiller said earlier Thursday at a Standard & Poor's housing summit.
He added that a 10 percent to 25 percent slump in real home prices "wouldn't surprise me at all," though he cautioned that was not a forecast.
As for when home prices might bottom, Shiller told Insider that was unclear and it was possible prices could slide for 20 years.
"We've seen five years of decline already since the peak in 2006 and I don't see evidence that we're coming out of it," he said.
But not everyone agrees. Separately, an article by Suzanne Kapner from the Financial Times reports on an analysis by Altos Research that asserts optimism is returning to the U.S. housing market:
List prices rose in 24 of 26 cities tracked by Altos Research in May, with San Francisco, Washington and San Jose, California, showing the biggest gains.
Separately, CoreLogic's latest report on home prices agrees that "signs of market stability" are coming as summer approaches. It says that the home price declines are slowing.
Who's right? It's impossible to know. As Shiller says, we're in unchartered territory. The U.S. has never experienced a housing bubble as large or widespread as the one that burst in 2007. Prices could return to their usual trend line, or they could overshoot, dipping even lower. The excess inventory could result in years of price stagnation. Prolonged high unemployment could make matters worse. Meanwhile, Congress' housing finance policy reform debate paired with last year's financial regulation bill makes the market even less stable, as the rules of the game are changing.
To refashion a classic Plato quotation (attributed to Socrates), you could say that the only thing we know about the future of the housing market right now is that we don't know anything. Though, that is something. As long as the future of home prices, home sales, and foreclosures remains hopelessly uncertain, many consumers will be wary about buying a home. At some point, home prices will have fallen far enough that the fear of the unknown will be overshadowed by the perceived bargains out there. At that time, we'll begin to see home sales slowly tick up until home prices are rising consistently and confidence is restored. But we don't know when that will be. And until then, all forecasters can really do is guess.
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