Where will housing prices go next?

By: Housing Wire staff
May 27, 2008

The biggest question on the minds of investors and industry participants isn’t exactly hard to divine right about now: where will housing price go? Have we reached a bottom?

The reason is equally easy to discern, given the importance housing prices will have in determining where both the primary and secondary mortgage markets go over the course of the next few quarters. Historically low interest rates matter little so long as prices are declining, whether in nominal or real terms — something that we think most mortgage brokers and bankers now understand, even if they didn’t want to believe it a few months back.

Which makes some analysis appearing this morning at the Calculated Risk blog worth noting: prices appear to have a ways to go before even nominal prices reach a trough. The blog’s eponymous author looks at months of supply in housing and the relationship with the Case-Shiller housing price index, and what he finds is evidence of a bottom that isn’t yet in sight.

Nominally, a look at historical data suggests that prices fall whenever months of supply is over 7 months; we’re currently at 11.2 months, based on the most recent NAR data. Even in real terms, CR finds evidence to suggest that prices correct downward when MOS is above 6.3 months.

The data suggests a nominal price decline of over 5 percent nationally during Q2.