The Painful Side of Supply and Demand
NYU Econ Prof Nouriel Roubini is all doom-and-gloom in this week’s New York Magazine interview. We excerpt some of his zingers herewith: You’re going to see some pretty nasty price action. We’re going to have a national recession in early 2007, and Wall Street profits and bonuses will sharply drop, limiting the wealth of these…
NYU Econ Prof Nouriel Roubini is all doom-and-gloom in this week’s New York Magazine interview. We excerpt some of his zingers herewith:
After making your way through the entire Q&A, it’s almost a relief to find out that he only thinks prices are going to fall 5 to 10 percent over the next year. Kinda feels like getting off easy!
The Descent [New York Magazine]
Illustration by James Taylor
He’s not just calling for a 10% drop this year. Also next year and the year after that. And that’s city wide. In the bubblier parts of Brooklyn it should be a little worse thatn that. Then when you factor in inflation… oh boy.
I agree 100% and so do the housing market futures traded on the merc exchange. I think they will go to 2004 levels
The Boston Herald reports on the latest numbers. “New figures confirm the Bay State is in the throes of a fierce housing downturn. Data released yesterday show Massachusetts is facing its steepest house-price drop since 1993 amid growing foreclosures and the slowest August market in more than a decade.â€
“Market watchers say the latest numbers all point to a housing sector in big trouble. ‘There’s no question the market is in decline,’ said housing economist Karl Case of Wellesley College. ‘Demand has dropped, inventory is building and people’s houses aren’t selling.’â€
“Warren Group CEO Tim Warren said prices are dropping because ‘buyers are tasting blood, and they’re starting to get more aggressive (about) pricing.’â€
What WAS this guy saying about real estate back in 2001-2002? Anybody know?
He has a 50-50 chance of being right. The market will either go up or down. Of course, if it just stays flat, he’s half right and half wrong. Pretty good odds, I’d say.
And, hey, if he says it for long enough (and, by the way, how long has he been saying it?), he’ll be right eventually.
What’s funny about market opinions is we never get to pillory these wonks when they’re wrong. Who’s going to care about his predictions a year from now if the market is up?
“If we go into deep recession won’t the fed start cutting rates?
While interest rates are only one part of the picture, if they drop it will help to limit the downside of home prices.”
Actually, anon at 10, I have read his blog, and I agree with the earlier anon that he is not a perma-bear, although he is very bearish right now.
He actually predicted that the Fed would start cutting rates this year to help avoid a recession, but I doubt that will help at this point. Nor do I think it will help housing – people are way too stubborn on this, but the one and only thing that will help housing is for prices to drop. Period. That’s it. People bought houses when rates were much higher than now, and they will again – when prices make sense compared to their incomes. Housing now seems to be losing life all on its own, with nothing to save it.
The only people I think will benefit from falling rates are those who bought with IOs or ARMs that are resetting – cuts could make the resets less painful. Or those with adjustable HELOCs for the same reason.
Before I bought my 3 family house two years ago, I agonized about all the “what ifs”. I talked it over with different people and one person who was brutally honest said that I should be prepared to live in my house for my whole life because I may lose my equity and have nothing. Well… I thought that was pretty extreme, but since then my house has gone up about 60% in value according to the last appraisal. Although I am not arguing with anyone about this (it helped me get better financing) this appreciation is crazy; I fully recognize that this amazing appreciation can and probably will erode. But having lived through the Real Estate sell off of the early 90’s, I have experienced the cyclical nature of real estate. This is my long term housing solution and I now have tenants in a market where rents are appreciating. There is a glut of condos and unsold units will become rentals — there is definately more supply on the market; everyone will be a lot more discriminating about what they buy – location, condition of the house, character of the real estate. We’ll survive.
If we go into deep recession won’t the fed start cutting rates?
While interest rates are only one part of the picture, if they drop it will help to limit the downside of home prices.
Here’s Roubini’s blog: http://www.rgemonitor.com/
Worth reading if you like economics.