Real Estate Experts Discuss Price Drops

Every time I see a headline like Real Estate Experts Discuss Possible Home Price Drops I think the "experts" may finally get it. Then I read the text and see it is the same old same old, otherwise known as the PHP or the TCT: "Permanently High Plateau" theory or the "Temporary Correction Theory".

Here are a few snips:

Rising mortgage rates and construction costs will cool the red-hot residential market and home prices could actually fall on the East and West Coasts in the next 18 months, real estate experts told the fall meeting of the Urban Land Institute Thursday. ... But, there is no bubble to burst in the middle of the country.

There is a glut of condos in downtown Chicago, said Douglas Crocker, partner in Chicago-based DC Partners LLC. "There's too much product under construction and being converted," Crocker said in an interview. "Housing prices won't fall, but they will go sideways."

Nationwide, a cool-off in the market won't translate into a drop in the price of new construction homes. "Nationally, construction materials costs jumped 10.8 percent in the last 12 months, and they are projected to rise 5.2 percent in 2006," said John Ware, general manager of RS Means in Kingston, Mass.

"In the housing sector, there has been bubble talk, but we think it is a cycle," said Peter Korpacz, director of global strategies finance for PricewaterhouseCoopers. "As prices and interest rates go up, people will fall out of the market. There won't be a bubble unless there are job losses, and now the economy seems resilient.

"Housing is definitely cooling off, but we will be shielded from a major turndown by new buyers in the market," Nadji said.

"The demand for housing will be bolstered by the 76 million Baby Boomers and 70 million echo Boomers with rich parents."

No matter what the headlines read, the text is invariably bullish. By the way, where is this baby boomers demand supposed to be coming from anyway? Do boomers not already own a home or two? If they intend to downsize now, just who can afford to buy from them with housing affordability at an all time low?

Questions like those are never answered. Heck, they are not even asked. In the meantime, support for the permanently high plateau theory seems to be gaining widespread acceptance. I guess we will see.

Mike Shedlock / Mish
http://globaleconomicanalysis.blogspot.com/