With the Case-Shiller index showing four months of declining home values and 2.2 million homes now 90 days late (or greater), housing is clearly having issues. The problems are only exacerbated with rising mortgage rates even if the rates are still low historically.
Yet, in his annual ritual, economist Mark Zandi is calling for a bottom in housing in 2011. Of course, he has been doing this since 2007 so he is bound to be right one of these times. Barry Ritholtz does a great job of cataloging Zandi’s predictions. (also see here for another take on Zandi).
Here is Zandi’s comments on housing for 2011:
Despite all these problems, Zandi thinks housing is finally approaching a turning point. He expects the market to bottom out in 2011.
“It’s been a five-year road south, and it’s been a complete cratering of the market,” he says. “But I think 2011 marks the end of that crash.”
Zandi says there are some more housing price declines ahead, as all these foreclosures continue to glut the market with millions of homes at fire-sale prices.
But by next summer, he expects prices to start stabilizing, with some price growth in 2012.
He should just copy and paste these for 2012 as well. As I said, he will eventually be right. I just think housing has a ways to go. I have profiled the number of Alt-A and Prime resets which hit heavy in 2011 and 2012.
These resets haven’t been as painful to date due to the extremely low mortgage rates (adjustments haven’t increased payments as much), but if rates remain steady or rise, it will get worse. Rising rates will impact housing beyond resets. For every 1% increase in mortgage rates, affordability drops 10%.
Hopefully, Zandi will be correct this time around, but I wouldn’t count on it.