Predictions

House prices are dropping once again. The homebuyer tax credit is expiring, the stimulus package effects will start dropping next quarter, and mortgage rates can only rise from here. All of this means that, on a national level, we can expect house prices to fall a significant amount (20-25% is reasonable in my view, although this will most likely occur over a few years). A key variable is whether the Fed will raise rates in the next two years. I no longer think will happen. There will be no solid recovery until the excess housing inventory is churned through the market, and this won't happen except at a significantly lower price and will take 3-5 years. When the stimulus effect on GDP recedes starting next quarter, GDP will start falling and the pressure against raising rates will be enormous. The U.S. will continue to run massive deficits, keep rates below 2%, and see unemployment above 9.5% for the remainder of 2010, as well as 2011. If the stock market returns to resembling economic reality, there should be a sizable downward adjustment within the next 6 months. On the bright side, the weather is getting nice here in New York.

Via Calculated Risk.