Ira Artman’s Sterling Slivers: Greed, Fear and Loathing - What’s Next for Home Prices

Detail from Antique Pipe Rack, kelvinko.com.

For US home prices, there was greed, then fear, and now … the loathing.

The ‘greed’ era ran from 2001 through 2006; followed by a brief bout of ‘fear’ in 2007 and 2008. Now it is 2009, and time for the ‘loathing.’

For about 15 of the past 22 years (1987 – 2008), home prices followed income. This relationship broke down in 2001, and we are now living through a correction of a surge that peaked in 2006.

This post will look at national home price behavior (using the RPX 25 MSA Composite, available at radarlogic.com) and briefly:

1. Review recent home prices and their relationship to income;
2. Examine alternative descriptive cycles of home price corrections; and
3. Estimate when the current cycle will give back all of the post 2001 gains in real home prices.

I will then develop an informal “Greed, Fear, and Loathing” model of national post-2001 home prices, using three factors:

• Greed: The extent to which home prices exceeded those consistent with relatively conservative mortgage underwriting practices;
• Fear: The unemployment rate; and
• Loathing: Estimates of national foreclosure activity.

The model will then be used to estimate what would be required to halt the current home price decline

The rest of this post is available here.