Weak Demographic Fundamentals
Via Kevin Drum, Merrill Lynch says that "real estate pricing in general can be expected to be in the doldrums through 2012." One particularly interesting tidbit is this part:
Beyond that, weak demographic fundamentals point to years of sluggish real estate activity, particularly in terms of the “price”. The looming dominance of the “move down” buyer suggests that home values will continue to soften long after the building industry mops up the current excess supply.
I heard about this from Megan McArdle in conversation, so maybe she'll explain it in more detail at some point, but it's so obvious once you hear it -- just as the media's always reminding us, all these baby boomers are going to be retiring over the next ten years. With kids out of the house, a lot of them are going to be looking to move into smaller homes in order to transform some of their home equity into liquid assets for consumption, and in order to reduce fixed costs in terms of taxes and hearing. There are always people looking to move down, of course, but the large size of the boomer cohort means it'll be exercising a steady downward drag on the market.