Housing Market will Recover in 2009, err….2015

Over the last few months, a wave of prognosticators has attempted to predict when the housing market will recover. Here at the Mortgage Blog, we have taken it upon ourselves to assemble all of these predictions:

The Department of Housing and Urban Development (HUD) is probably the most high-profile group to issue an optimistic forecast for 2009. It sees signs that the housing market is already stabilizing and will beat a path towards partial recovery as soon as the second half of 2009. Alan Greenspan, former Chairman of the Federal Reserve Bank, is equally optimistic: ” ‘We are finally beginning to see the seeds of a bottoming‘ in the housing industry,” he offered recently. Real estate mogul Sam Zell also forecasts an uptick sometime this summer.

ZipRealty is focusing on the inventory side of the equation. The organization sees a direct correlation between declining inventory levels (to eight months, down from 11) and a stronger market. “The fact that inventory is declining is suggesting that soon we will see home prices begin to stabilize. In some markets it may begin to turn upward.” However, this logic is contradicted by a recent survey, which determined that inventory is being held artificially low by sellers trying to time the market. “With almost a third of homeowners poised to jump into the market at the first sign of stabilization, this could create a steady stream of new inventory adding to already record-high inventory levels, thus keeping downward pressure on home prices.”

According to Fitch Ratings, meanwhile, “Home prices won’t stabilize until late 2010 and will fall another 12.5% from the end of 2008….The new estimate puts home prices falling to early 2002 levels, while they’re currently at values seen in mid-2003. Home prices have already declined by 27% nationally, according to the ratings agency, and the revised estimates would create a 36% decline from the housing market’s peak in 2006.”

All of the forecasters insist that national trends and averages mask large regional discrepancies. This is manifested by a recent WSJ survey (well worth a look), which shows how inventories and prices are fluctuating unevenly in different areas. The Concord Group, a real estate advisory firm, is drilling down even further, by looking just at the market for newly-built single-family homes. It predicts that the most hard-hit areas won’t recover until 2015!

Let’s forget about the experts; how do home-owners feel? According to Zillow.com’s quarterly Homeowners Confidence Survey, “Roughly a third of homeowners…in the Northeast believe the value of their little piece of the market is headed up, up and away over the next six months. By contrast, just 23 percent saw it falling.” While such optimism is not to be discounted, the same survey demonstrated that most homeowners still aren’t aware that housing prices have fallen over the last year, which makes the rosy forecast seem somewhat dubious.

And what about the numbers? Perhaps the most famous index (Case Shiller) suggests that housing prices will soon revert back to their inflation-adjusted mean.