An Uncertain Future for Housing Prices

Laurie Goodman
Laurie Goodman

Few metrics mirror the rise and decline of the national economy over the last decade as closely as the Case-Shiller Housing index:  steady growth peaking in early 2007, a precipitous decline over the ensuing two years, and a feeble recovery since.

It should come as little surprise, then, that renewed decline in housing prices would surely impede economic growth.

Karl Case
Karl Case

Yet that is a strong possibility, according to housing expert Laurie Goodman, the Senior Managing Director of Amherst Securities.  Goodman was joined in Boston last week on a panel to discuss the housing market by Karl Case, a professor of economics at Wellesley College who, along with Yale professor Robert Shiller, created the Case-Shiller index.

S&P 20-city Composite
Source: standardandpoors.com

Case said housing prices will remain unchanged for the next year and a half and that there is little chance of a steep increase or decrease, because the large number of sellers and buyers waiting on the sidelines would mitigate a large move in either direction.

Goodman, however, was decidedly more pessimistic, predicting a 5% to 10% further decline in home prices.  “I actually see a huge problem,” she said, as excess supply and weak demand will combine to drive down prices.

I’ll first review Goodman’s analysis of supply and demand in the housing market, then return to consider why Case does not think things will be as bad as Goodman predicts.