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Monday, December 19, 2005

Real Estate: Is the party over?

by Calculated Risk on 12/19/2005 08:52:00 PM

CNN Money asks: Is the party over?

The article includes "exclusive forecasts" for the 100 largest markets.

... the overall outlook seems reasonable: 7 percent appreciation for 2006 and flat for 2007. But markets that have seen the greatest appreciation over the past five years appear to be vulnerable.

Indeed, at some point in the next two years, according to the forecast, a third of the nation's 100 largest metro areas (accounting for 60 percent of the U.S. population) are expected to see modestly falling house prices.

Real estate bear markets often come in the form of steady declines over many years, rather than sudden sharp drops.

As inflation gradually gnaws away at the value of nominal home prices, regular folks might not take much notice. But in the long run the loss of wealth becomes all too real. From 1989 to 1997, for instance, Los Angeles residential real estate dropped more than 40 percent in inflation-adjusted terms.

The nation's most perilous regional market, according to the forecast data: Las Vegas, a speculator-infested hot spot. Prices there are projected to deflate by 7.9 percent next year, the year after by another 5 percent. For newcomers to the market and those with low-money-down deals who may have overleveraged themselves with adjustable-rate mortgages, even a modest downturn could mean financial jeopardy.
Check out the table at the bottom of the article. I think some of these projections are a little optimistic. Will San Antonio home prices increase 15% over the next two years? Will Boston stay flat, even with 8+ months supply (and growing)?