Tuesday, June 01, 2010

IMF economist: home prices have much more to fall

IMF economist Prakash Loungani is not exactly optimistic about global (or U.S.) housing prices:
International Monetary Fund economists Prakash Loungani has found plenty of reasons to remain glum.

Loungani, at a National Economists Club luncheon in Washington Thursday, presented his analysis of housing busts since 1970 in the countries that make up the Organization for Economic Cooperation and Development. His prediction: Home prices will fall much farther and for much longer.

On average, the previous housing slumps lasted 18 quarters, with prices dropping 22% from peak to trough. By contrast, the current housing slump has lasted only 14 quarters, during which prices have dropped just 15%.

But the latest boom was so much bigger than the previous ones that it’s logical to anticipate an even more brutal downturn, Loungani argued. Prices rose 113% over 41 quarters, compared with 39% average price increase over 39 quarters seen in the previous booms. ...

Loungani said his analysis of prices and rents in U.S. metro areas suggests that many markets on the West coast and in parts of the Northeast could yet see prices plummet a further 30-40%.


  1. IMF? To be taken seriously.

  2. Foreclosures are becoming a way of life. There is no more stigma associated with it. Who would have thought that people would view foreclosures as blessings. This is great stuff!

    CNBC excerpt

    "Foreclosure has allowed them to stabilize the family business. Go to Outback occasionally for a steak. Take their gas-guzzling airboat out for the weekend. Visit the Hard Rock Casino.

    'Instead of the house dragging us down, it’s become a life raft,' said Mr. Pemberton, who stopped paying the mortgage on their house here last summer. 'It’s really been a blessing.'”

  3. You have to remember the bigger picture, though -- http://www.green-agenda.com/sustainabledevelopment.html

    Private property is undesirable when the goal is more control.

  4. The fact that he is with the IMF is a red herring in this case.
    Bottom line: He is correct!

  5. Speaking of the IMF.

    I was just in the Dominican Republic - say over 30 United Nation trucks getting ready for something big.

  6. An honest economist? Wow, I thought they were extinct decades ago.

  7. This IMF guy is from India, which has the MOST ABSURD real estate bubble in the world, followed closely by China. In the metros of India and China, median apartment prices are 50-60 times the median income, and single family homes are 100-200 times the median income. It is a fact that the home prices in these so called "developing" countries are much higher than in the "developed" countries. India's and China's GDP is mostly driven by self-hyped real estate investments. This IMF economist has the nerve to comment on America's home prices, which are extremely affordable and actually quite undervalued in the world when comparing quality, size, features, infrastructure and median incomes. Go figure !!!

  8. Median income probably isn't a good stat in China or India because of the huge income gap between the well off and the vast numbers in abject poverty. Think of the classic example of the mean income in a bar is 500 millions (or whatever) when bill gates walks through the door. The flip side is the median income in a room with a billionaire and 50 guys who make a buck a day is 365 dollars.

    i'm not denying that a bubble exists, just that the median income multiple exaggerates it.

  9. But what about he 8k most "saved" in buying a home? What's 5% of 300k? Uh oh, 15k. Whoops!

  10. China is anything but in trouble of any kind. Don't believe anything you hear in the mainstream news media these days. If you have enough money, you can pay the media to say anything. The private wealth that owns the world's central banks stands to lose once you realize that the US is no longer the place to invest. Some things are really that simple. China's government owns its central bank.

  11. I have an idea, lets divert the fact that home prices in the US have dropped, are still dropping and will be dropping for a LOOOOOOOOONG time and talk about China!

  12. Here's a short clip explaining how the bubble and the crash happened: