The accompanying chart is seen below:

(click on chart image to enlarge)

As one can see from the above chart, the average expectation is that the residential real estate market, as depicted by the Case-Shiller US National Home Price Index (NSA), will slowly climb (on a cumulative basis) through 2016.

The survey detail is interesting.  Of the 109 survey respondents, 9 (of the displayed responses) foresee a cumulative price decrease through 2016; and of those 9, only 3 foresee a double-digit percentage cumulative price drop.  Mark Hanson remains the most “bearish” of the survey participants with a forecast of a 25.17% cumulative price decline through 2016.

The Median Cumulative Home Price Appreciation for years 2011-2016 is seen as -2.00%, -1.99%, .29%, 3.01%, 6.96%, and 10.63% respectively.

For a variety of reasons, I continue to believe that even the most “bearish” of these forecasts (as seen in Mark Hanson’s above-referenced forecast)  will prove too optimistic in hindsight.  Although a 25.17% decline is substantial, from a longer-term historical perspective such a decline is rather tame in light of the wild excesses that occurred over the “bubble” years.

I have written extensively about the residential real estate situation.  For a variety of reasons, it is exceedingly complex.  While many people continue to have an optimistic view regarding future residential real estate prices, in my opinion such a view is unsupported on an “all things considered” basis.  Furthermore, (even) from these price levels there exists outsized potential for a price decline of severe magnitude, unfortunately.  I discussed this downside, based upon historical price activity, in the October 24, 2010 post titled “What’s Ahead For The Housing Market – A Look At The Charts.”

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The Special Note summarizes my overall thoughts about our economic situation

SPX at 1265.33 as this post is written

The accompanying chart is seen below:

(click on chart image to enlarge)

As one can see from the above chart, the average expectation is that not only has the residential real estate market (nearly) hit a “bottom” as far as pricing; but that steady yet mild appreciation will occur through 2015.

The survey detail is interesting.  Of the 111 survey respondents, 20 (of the displayed responses) foresee a cumulative price decrease through 2015; and of those 20, only four foresee a double-digit percentage cumulative price drop.  Mark Hanson remains the most “bearish” of the survey participants with a forecast of a 22.03% cumulative price decline through 2015.

The Median Cumulative Home Price Appreciation for years 2011-2015 is seen as -2.53%, -2.62%, -.84%, 1.99%, and 5.44% respectively.

For a variety of reasons, I continue to believe that even the most “bearish” of these forecasts (as seen in Mark Hanson’s above-referenced forecast)  will prove too optimistic in hindsight.  Although a 22.03% decline is substantial, from a longer-term historical perspective such a decline is rather tame in light of the wild excesses that occurred over the “bubble” years.

I have written extensively about the residential real estate situation.  For a variety of reasons, it is exceedingly complex.  While many people continue to have an optimistic view regarding future residential real estate prices, in my opinion such a view is unsupported on an “all things considered” basis.  Furthermore, (even) from these price levels there exists outsized potential for a price decline of severe magnitude, unfortunately.  I discussed this downside, based upon historical price activity, in the October 24, 2010 post.

_____

The Special Note summarizes my overall thoughts about our economic situation

SPX at 1134.24 as this post is written

The accompanying chart is seen below:

(click on chart image to enlarge)

As one can see from the above chart, the average expectation is that not only has the residential real estate market (nearly) hit a “bottom” as far as pricing; but that steady yet mild appreciation will occur through 2015.

The survey detail (pdf) is interesting.  Of the 100+ survey respondents, 18 (of the displayed responses) foresee a cumulative price decrease through 2015; and of those 18, only three, Gary Shilling, John Brynjolfsson, and Anthony Sanders foresee a double-digit percentage cumulative price drop.  Gary Shilling remains the most “bearish” of the survey participants with a forecast of a 19.68% cumulative price decline through 2015.

The Median Cumulative Home Price Appreciation for years 2011-2015 is seen as -3.10%, -2.22%, -.15%, 2.94%, and 6.72% respectively.

For a variety of reasons, I continue to believe that even the most “bearish” of these forecasts (as seen in Gary Shilling’s above-referenced forecast)  will prove too optimistic in hindsight.  Although a 19.68% decline is substantial, from a longer-term historical perspective such a decline is rather tame in light of the wild excesses that occurred over the “bubble” years.

I have written extensively about the residential real estate situation.  For a variety of reasons, it is exceedingly complex.  While many people continue to have an optimistic view regarding future residential real estate prices, in my opinion such a view is unsupported on an “all things considered” basis.  Furthermore, (even) from these price levels there exists outsized potential for a price decline of severe magnitude, unfortunately.  I discussed this downside, based upon historical price activity, in the October 24, 2010 post.

_____

The Special Note summarizes my overall thoughts about our economic situation

SPX at 1292.89 as this post is written

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Given the continual decline in residential real estate prices, I have found an April 12 report from Pew Research Center, titled “Home Sweet Home.  Still.” (pdf) to be interesting.

The report contains a variety of statistics on the attitudes of respondents concerning home ownership from a financial perspective.

One of the main findings of the research, as seen in the overview:

The five-year swoon in home prices has done little to shake the confidence of the American public in the investment value of homeownership. Fully eight-in-ten (81%) adults agree that buying a home is the best long-term investment a person can make, according a nationwide Pew Research Center survey of  2,142 adults conducted from March 15 to March 29, 2011.

As well, later in the report there are a variety of survey results concerning respondents’ attitudes toward the overall economy and their own financial conditions.  One statistic that I found notable is the following, found on page 12:

Overall, the public remains skeptical about the pace of the economic recovery. Only one-infive (21%) say the economy is recovering, and an additional 29% say the economy is not recovering yet but will soon. Nearly half (47%) say it will be a long time before the economy recovers.

_____

The Special Note summarizes my overall thoughts about our economic situation

SPX at 1345.10 as this post is written

(Other stories regarding this Press Release were found at a May 9 Bloomberg story, “U.S. ‘Underwater’ Homeowners Increase to 28 Percent, Zillow Says” and CNBC.com article of May 9 “Homeowners Drowning in Negative Equity”)

I think it is important to note how quickly the percentage of “underwater” mortgages is increasing relative to the decreases in home prices.  As well, it is important to note that the 28% figure quoted above is a national average; as seen in the Press Release detail, there are many metropolitan areas with significantly higher figures.  Furthermore, it should also be noted that there are various ways to estimate and measure the percentage of “underwater mortgages,” and as such the 28% figure may be understated if another methodology were to be used.

As I have written of previously, the residential real estate market is highly complex and, in my opinion, widely misunderstood.  The increasing rate of “underwater mortgages” should be of great concern, as it likely will feed the growth of various other problems such as “strategic defaults.”

Falling residential real estate prices remain a severe threat to the economy.

_____

The Special Note summarizes my overall thoughts about our economic situation

SPX at 1337.77 as this post is written

(click on chart to enlarge image)

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My comments:

From the above chart, one can see why, especially both before and during the “bubble years,” there was a widely-held perception that “house prices never decline.”

Many people currently believe that either the “bottom is in” with regard to prices or such a “bottom” is close at hand.  One can see this among the consensus in the MacroMarkets March 2011 Home Price Expectations Survey, as well as various other sources.

While many can cite various statistics and valuation measures justifying their beliefs that “real estate has bottomed” at these levels, since the peak there have been many of these incorrect proclamations and analyses.

I believe that the continual decline in residential real estate is, in part, a testament to how “tricky” predicting asset bubbles can be.

I have written extensively about the residential real estate situation.  For a variety of reasons, it is exceedingly complex.  While at this time, as aforementioned, many people have an optimistic view regarding future residential real estate prices, I continue to believe that such a view is unsupported on an “all things considered” basis.  Furthermore, there exists outsized potential for a price decline of severe magnitude, unfortunately.  I discussed this downside, based upon historical price activity, in the October 24, 2010 post.

_____

The Special Note summarizes my overall thoughts about our economic situation

SPX at 1324.46 as this post is written

Here is the Press Release (pdf); the accompanying chart is seen below:

(click on chart image to enlarge)

As one can see from the above chart, the average expectation is that not only has the residential real estate market (nearly) hit a “bottom” as far as pricing; but that steady yet mild appreciation will occur through 2015.

The survey detail (pdf) is interesting.  Of the 111 survey respondents, only 9 (of the displayed responses) foresee a cumulative price decrease through 2015; and of those 9, only two, Gary Shilling and Mark Hanson, foresee a double-digit percentage cumulative price drop.  Gary Shilling remains the most “bearish” of the survey participants with a forecast of a 19.68% cumulative price decline through 2015.

The Median Cumulative Home Price Appreciation for years 2011-2015 is seen as -.5%, .98%, 4.03%, 7.14%, and 11.15% respectively.

For a variety of reasons, I continue to believe that even the most “bearish” of forecasts (seen in Gary Shilling’s above-referenced forecast)  will prove too optimistic in hindsight.  Although a 19.68% decline is substantial, from a longer-term historical perspective such a decline is rather tame in light of the wild excesses that occurred over the “bubble” years.

I have written extensively about the residential real estate situation.  For a variety of reasons, it is exceedingly complex.  While at this time many people have an optimistic view regarding future residential real estate prices, in my opinion such a view is unsupported on an “all things considered” basis.  Furthermore, there exists outsized potential for a price decline of severe magnitude, unfortunately.  I discussed this downside, based upon historical price activity, in the October 24, 2010 post.

_____

The Special Note summarizes my overall thoughts about our economic situation

SPX at 1310.19 as this post is written

Here is the Press Release (pdf); the accompanying chart is seen below:

(click on chart image to enlarge)

As one can see from the above chart, the expectation is that not only has the residential real estate market (nearly) hit a “bottom” as far as pricing; but that steady yet mild appreciation will occur through 2015.

The survey detail is interesting.  Of the 110 survey respondents, only 7 foresee a cumulative price decrease through 2015; and of those 7, only one, Gary Shilling, sees a double-digit percentage cumulative price drop.  He remains the most “bearish” of the survey participants with a forecast of a 19.68% cumulative price decline through 2015.

The Median Cumulative Home Price Appreciation for years 2010-2015 is seen as -1.0%, -.4%, 1.94%, 4.6% , 7.86%, and 11.69% respectively.

For a variety of reasons, I continue to believe that even the most “bearish” of forecasts (seen in Gary Shilling’s above-referenced forecast)  will prove too optimistic in hindsight.  Although a 19.68% decline is substantial, from a longer-term historical perspective such a decline is rather tame in light of the wild excesses that occurred over the “bubble” years.

I have written extensively about the residential real estate situation.  For a variety of reasons, it is exceedingly complex.  While at this time many people have an optimistic view regarding future residential real estate prices, in my opinion such a view is unsupported on an “all things considered” basis.  Furthermore, there exists outsized potential for a price decline of severe magnitude, unfortunately.  I discussed this downside, based upon historical price activity, in the October 24, 2010 post.

A Special Note concerning our economic situation is found here

SPX at 1257.64 as this post is written

click on chart to enlarge image

As one can see on this chart, real estate prices (here measured by the S&P/ Case-Shiller U.S. National Home Price Index) really started their ascent in the mid-90′s.

Here is another chart, reflecting the CoreLogic House Price Index of July 2010.  The chart is courtesy the CalculatedRisk blog with annotations by John Lounsbury, as noted:

click on chart to enlarge image

In this chart it is again seen that the pronounced ascent in real estate prices began in the mid-90s.  As well, as seen by John’s annotations, the market has experienced a roughly 30% fall from its peak, and a price reversion to the trendline from January 1976 would represent a further 15% decline.

I have written extensively about various facets and dynamics of the residential real estate market.  My analysis indicates that this is a market that is exceedingly complex, due to a variety of hard-to-predict factors.  These factors include such issues as strategic default trends, “shadow inventories”, redefault rates, and the relatively new confusion concerning foreclosure propriety.  As well, there is immense direct and indirect government intervention in this market, which presents further complexities.

Assessing the future path of real estate prices can be done in a variety of fashions; as well, many different measures can be taken into account.  There are reams of data on a myriad of statistics.

For purposes of this post, I would like to focus on the price trends as shown in the two charts above and raise four issues with regard to the future of home prices.  Although I don’t necessarily agree with the methodologies employed by these indices,  they have common acceptance.

The first issue I would raise is whether trendlines can be used to assess the trends of house prices.  The issue is debatable.  Whereas trendlines have proven validity in stock price movements, I would question as to whether such validity exists with regard to home prices.

The second issue is whether such trendlines (assuming their use in housing trends is valid) will serve as “support.”  I would offer that if the housing market is in a continuation of its long-running bull market, the trendline would serve as support.  However, whether we are continuing a long-running bull market in housing is deeply contentious.  My own view on the matter is that the housing market peaked as shown and is now on a decline.  As such, a trendline would likely not hold as support.

The third issue is that of ultimate support; i.e. a price floor.  Some believe that the “pre-bubble” price levels would serve as such a floor.  For example, if one believed that the real estate bubble started in earnest in the mid-90′s, such a level would serve as the ultimate price floor.  This seems logical as, in theory, the price inflation during the bubble’s excesses would be eliminated if the price were to return to the pre-bubble price levels.  However, I think this is erroneous logic on many fronts.  From a “technical perspective” it fails to consider a “reversion to the mean” that would result in a “price undershoot” to a level significantly below that of the prices of the mid-90′s.

The fourth issue is one of “bubble dynamics.”  Of course, the almost universal belief is that the housing bubble has “popped.”  I don’t agree.  As I have previously written, I believe the roughly 30% decline experienced to date, although incredibly damaging, is a “deflation” of the huge bubble as opposed to its “popping.”  Further supporting this idea is that each index has only fallen to levels last seen during a latter year of the bubble, approximately the 2003 period.

This “deflation” vs. “popping” nomenclature is more than semantics.  If the bubble has only “deflated,” as I believe, then the “popping,” and its pronounced accompanying damage, still awaits.

Lastly, one should keep in mind how supportive (ultra) low interest rates have been to real estate prices.   While such low interest rates are widely believed to be stable for the foreseeable future, a substantial uptick in rates would likely prove a significant headwind against the possibility of rising prices.

In summary, while many people have an optimistic view regarding future residential real estate prices, in my opinion such a view is unsupported on an “all things considered” basis.  Furthermore, as discussed, there exists outsized potential for a substantial price decline, unfortunately.

A Special Note concerning our economic situation is found here

SPX at 1183.08 as this post is written

Here is the Press Release (pdf); the accompanying chart is seen below:

As one can see from the above chart, the expectation is that not only has the residential real estate market hit a “bottom” as far as pricing; but that steady yet mild appreciation will occur through 2014.

The survey detail is interesting.  Gary Shilling remains the most “bearish” of the survey participants with a forecast of an 18.78% cumulative price decline through 2014.

The Median Cumulative Home Price Appreciation for years 2010-2014 is seen as -.17%, -.85%, 3.17%, 6.10% , and 9.7%, respectively.

For a variety of reasons, I continue to believe that even the most “bearish” of forecasts (seen in Gary Shilling’s above-referenced forecast)  will prove too optimistic in hindsight.  Although an 18% decline is substantial, from a longer-term historical perspective such a decline is rather tame in light of the wild excesses that occurred over the “bubble” years.

I have written extensively about the residential real estate situation.  For a variety of reasons, it is exceedingly complex.  While at this time many people have an optimistic view regarding future residential real estate prices, in my opinion such a view is unsupported on an “all things considered” basis.  Furthermore, there exists outsized potential for a price decline of severe magnitude, unfortunately.

A Special Note concerning our economic situation is found here

SPX at 1138.20 as this post is written