Filed under: Forecasts, Bad news, Consumer experience, Economic data, Housing
The Boston Globe interviews Warren Group CEO Timothy Warren whose firm tracks housing in Massachusetts. He recommends that it could take about 10 years before housing prices return to where they were at the peak in 2005.
Warren is a breath of fresh air when it comes to examining the housing market. Unlike industry-sponsored studies — such as this bubbly comment from the National Association of Realtors — Warren carefully tracks and analyzes data and his observations are not filtered by the need to use public pronouncements to spur real estate transactions.
But Warren’s loyalty appears to lie with objective data gathering and analysis, rather than having an ulterior motive. He thinks that the declining number of home sales is worse than the previous housing slump of the early 1990s. He notes that “In the 1990s, we’d just two years when the number of sales declined. We’re in the fourth year of declining sales in the current slump.”
He points out that the decline in Massachusetts’ median price doesn’t look as bad as it did in the ’90s, but he thinks that the downturn could last longer. As Warren stated, “if 2008 is another year of declining price, this would be the third year.” He noted that in the 1990s slump there was a very slow — six year — recovery. After prices stopped falling in 1993, it took six years for the Massachusetts median price to exceed its level before the slump started.
Using this logic, Massachusetts is likely going to hit bottom in 2009 and then take another five years to see real estate prices return to where they were in 2005 when the prices started falling. People ask Warren when the recovery will begin and he says, maybe in 2009. However, “after the recovery starts it might take five years.” That would mean Massachusetts housing prices would recover to their 2005 levels in 2014.
Warren’s five year recovery estimate seems optimistic to me — I’d give it a year more than the 1990s recovery period — or seven years. If my more conservative assumptions prove correct, then housing prices will bottom out next year won’t return to where they were in 2005 until 2016.
Warren fingers simple money for blowing up the housing bubble. And since we’re in the middle of figuring out how much damage the economic backlash from that simple money will cause — in terms of foreclosures, excess housing supply, and far tighter credit — it is somewhat encouraging that Warren thinks housing will ever rise again.
Peter Cohan is President of Peter S. Cohan & Associates. He also instructs management at Babson College and edits The Cohan Letter.
Entries (RSS)