The Uncertainty Of Hitting Rock Bottom

19042496.jpgIf you haven’t heard enough about the tanking prices in the housing market, I have another story for you. (If you have, well – tough noogies.)

This piece comes in from BusinessWeek – the “Housing Meltdown” article predicts a potential 25% further drop in average housing prices before we hit the bottom and start scraping ourselves back up. The article’s prediction says the plummet could happen over the next two to three years. But before some of you start reaching for the anxiety pills (sellers) and some of you (buyers) start scheming for ways to finally break into the housing market, keep a few things in mind.

1. Even the expert predictions are just that – predictions that are anybody’s best guess. For instance, read these two excerpt very carefully:

Some experts have begun to suggest that a bottom is in sight. Pali Research analyst Stephen East wrote in a research note to his firm’s clients on Jan. 25 that “the sun is not shining very brightly, but at least the worst of the storm has likely passed.”

Why might housing prices plunge violently from here? Remember the two powerful forces that pushed them up: lax lending standards and the conviction that housing is a fail-safe investment. Now both are working in reverse, depressing demand for housing faster than homebuilders can rein in supply.

Even the best that some research analysts can do is add cautionary words such as “likely” and “might” into the mix.

2. Markets will vary based on region – right down to the neighborhoods. For instance in the February 11, 2008 physical issue of the same online article, the chart shows that 77% of Los Angeles homes would be worth less than the value of their mortgages should housing prices drop 20% or more. On the other side of the country, the same would be true for 45% of the homes in Boston.

3. Not all experts agree. According to BusinessWeek, optimists say that the housing prices won’t plunge because sellers would rather take their homes off the market than sell cheap. (I’ve seen sellers in the LAX area opt to rent their homes or hold onto their high sales prices for a long time. And like I’ve said before, prices are coming down, but very slowly.)

According to BusinessWeek data, pessimists say no way in heck can the sellers avoid caving – they can’t ignore the laws of supply and demand.

So there you have it. What do you all think?