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Thursday, February 05, 2009

Zandi: "Looking For a Bottom"

by Calculated Risk on 2/05/2009 12:30:00 PM

From a presentation this morning titled "Looking For a Bottom", Moody's chief economist Mark Zandi projected:

  • House prices will fall "at least" another 10%.

  • Inventories have peaked.

  • Housing starts will bottom in the first half of 2009, but the rebound will be slow as excess existing home inventory is reduced.

    I think it is a little early to call the peak in inventories, although this is something I've been watching. Here is graph from a previous post: Existing Home Sales (NSA)

    Existing Home Inventory NSA This graph shows inventory by month starting in 2002.

    Inventory levels were flat for years (during the bubble), but started increasing at the end of 2005.

    Inventory levels increased sharply in 2006 and 2007, but have been close to 2007 levels for most of 2008. In fact inventory for the last five months was below the levels of last year. This might indicate that inventory levels are close to the peak for this cycle.

    I agree with Zandi that housing starts will bottom in 2009. See: Looking for the Sun

    However I think it is still too early to forecast the bottom in house prices, especially in the mid to high priced areas.

    And it is important to note that Zandi might be starting to look for the bottom in some stats (like starts), but he is forecasting a very sluggish recovery.