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Goldman Backpedals On Housing Recovery, Delays "Housing Bottom" Forecast To Mid-2013

Tyler Durden's picture





 

Regular readers are all too familiar with the saga of Goldman Sachs, which back in December 2010 called for a new American golden age, only to crash and burn as the economy not only slid right back into its depressionary glidepath but had to be bailed out by the Fed yet again. Sure enough, back in December of last year, the same firm made a surprising forecast, being the first of many (as others naturally jumped on the Goldman bandwagon), calling for an imminent housing bottom. Naturally, we scoffed at said proclamation. Two months later, which have seen two months of deteriorating conditions and declining prices, Goldman is out, saying that it may have just been kidding. From Goldman's Hui Shan: "In December 2011 we published a new house price model for 147 metro areas that pointed to a decline of around 3% from mid-2011 through mid-2012 before stabilizing in the year thereafter. Excess supply and negative house price momentum were the main drivers of the projected decline over the subsequent four quarters. In the year thereafter, the model suggested that house prices would stabilize as the negative momentum faded. Our model also pointed to substantial variation in house price appreciation across metro areas. Although city-by-city house price dynamics are particularly difficult to model, we projected increases in Detroit, Miami and Cleveland, but significant declines in Portland, New York and Atlanta during the next two years. Since publication of this forecast--which was based on Case-Shiller house price data up to 2011Q2--house prices have weakened anew....The implications of these changes are threefold: First, we now see a somewhat weaker near-term house price outlook. Specifically, we forecast that house prices will decline by 3.3% from 2011Q3 until 2012Q3, and by an additional 1.1% between 2012Q3 and 2013Q3. Second, the expected bottom in house prices is pushed out from end-2012 to mid-2013. Third, the long-run outlook for house prices is not significantly affected by our update." So for anyone basing their housing recovery call on Goldman, sorry - Goldman was only kidding. Again.

Full note

House Prices Bottom: A Bit More Distant, But Still in Sight

  • In December 2011 we published a new house price model for 147 metro areas that pointed to a decline of around 3% from mid-2011 through mid-2012 before stabilizing in the year thereafter. Since publication of the model--which was based on Case-Shiller house price data up to 2011Q2--the decline in house prices has reaccelerated slightly. In today's (February 29) comment we update our forecast in light of this and also use the opportunity to make a couple of technical changes to the model.
  • We now project that house prices will decline by around 3% from 2011Q3 until 2012Q3, and by an additional 1% in the year thereafter. As a result, the expected bottom in house prices is pushed out from end-2012 to mid-2013. Although the house price outlook has weakened very slightly, we believe that the house price bottom remains in sight.

In December 2011 we published a new house price model for 147 metro areas that pointed to a decline of around 3% from mid-2011 through mid-2012 before stabilizing in the year thereafter. (For details see Hui Shan and Sven Jari Stehn, "US House Price Bottom in Sight," Global Economics Paper, No. 209.) Excess supply and negative house price momentum were the main drivers of the projected decline over the subsequent four quarters. In the year thereafter, the model suggested that house prices would stabilize as the negative momentum faded. Our model also pointed to substantial variation in house price appreciation across metro areas. Although city-by-city house price dynamics are particularly difficult to model, we projected increases in Detroit, Miami and Cleveland, but significant declines in Portland, New York and Atlanta during the next two years.

Since publication of this forecast--which was based on Case-Shiller house price data up to 2011Q2--house prices have weakened anew: the national Case-Shiller house price index declined by 1.4% in 2011Q3 and 1.7% in 2011Q4. In today's comment we update our forecast in light of this and also use the opportunity to make a couple of technical changes to the model.

First, we update our model with the 2011Q3 Case-Shiller house price indexes, which are now available for all of the 147 metro areas in our sample. Unfortunately, we do not yet have 2011Q4 Case-Shiller data available for all metro areas.

In a second step we incorporate the 2011Q4 20-city Case-Shiller house price data, which was just released yesterday (February 28). To take into account this new information, we adjust our forecasts for these 20 cities (but keep the forecasts for the remaining 127 metro areas unchanged). For example, if our model projects a city’s house price to increase by 4% from 2011Q3 to 2012Q3 but the Case-Shiller index showed a decline of 2% in 2011Q4, then our adjusted forecast would be 1% ( = -2% + 0.75*4%). In this way, we ensure our forecasts incorporate all the information that we have at the time of forecasting.

Third, we make a technical change to our model. We previously used a four-quarter-ahead specification for the first-year forecast and an eight-quarter-ahead specification for the second-year forecast. Moreover, we used the four-quarter model with dynamic updating to forecast house prices in the next 10 years (i.e. the first-year forecast was fed into the model to generate the second-year forecast, and so on). We decided not to use the eight-quarter-ahead model any longer because it fits the data less well compared with the four-quarter specification and it may generate forecasts that are inconsistent with the four-quarter model with dynamic updating. In addition, our original model used the contemporaneous homeowner vacancy rate as one of the control variables. To reduce the measurement error in the quarterly MSA-level vacancy rate measure and minimize potential attenuation bias, we now use its four-quarter moving average. These technical changes have relatively small effects on our results.

Finally, we incorporate updated CBO long-run economic projections for inflation, wages and salaries, and 10-year Treasury yield which we use to calculate our long-run house price forecasts.

The implications of these changes are threefold:

First, we now see a somewhat weaker near-term house price outlook (Exhibit 1). Specifically, we forecast that house prices will decline by 3.3% from 2011Q3 until 2012Q3, and by an additional 1.1% between 2012Q3 and 2013Q3. The key reason for this downgrade in the forecast is the more negative trend in house prices since mid-2011 (rather than the technical changes). The forecast still displays substantial regional variation. We now expect (small) increases during the next two years in Detroit, Cleveland and Phoenix, and significant declines in Atlanta, Los Angeles and New York. (For a detailed list with our new forecasts for all metro areas, see US House Price Projections by Metro Area.)

Exhibit 1: Our Updated House Price Model Shows More Near-Term Weakness…

Second, the expected bottom in house prices is pushed out from end-2012 to mid-2013 (Exhibit 2). This change looks fairly large when compared with the relatively small shift in the predicted percent change in house prices. However, the reason is simply that the predicted pattern of house prices is quite "flat" around the bottom.

Exhibit 2: … And A Later House Price Bottom

Third, the long-run outlook for house prices is not significantly affected by our update (Exhibit 2). Although our updated model points to a slightly lower path for equilibrium house prices--as a result of the CBO's new economic forecasts--we continue to expect nominal house price appreciation of around 30% over the next ten years.

The bottom line from our updated model is that the near-term house price outlook looks softer in light of recent weakness in house prices. But our core view--that the house price bottom is in sight--remains intact.

 


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Thu, 03/01/2012 - 08:04 | Link to Comment ArkansasAngie
ArkansasAngie's picture

Houses are not near their economic value yet.  They are being artificially held high by Bernanke andd company.

Price discovery is a bitch.  Especially if it means that there would be a great transfer of wealth from Goldman et al

Go ahead and vote for Obummer or Oromney ... and see if you the change you get isn't really pennies on the dollar.

Thu, 03/01/2012 - 08:08 | Link to Comment economics1996
economics1996's picture

Another 5% to 10% to go.  Sunshine and lollipops.

Thu, 03/01/2012 - 09:07 | Link to Comment Cole Younger
Cole Younger's picture

Likely more than that. Prices won't bottom until people start buying. People won't be buying until they deleverage there debt/ Thats going to take along time.

Thu, 03/01/2012 - 10:52 | Link to Comment Woodyg
Woodyg's picture

People won't buy until they can get a job with a decent age - this ain't rocket science....

People make less in an uncertain to be there in the future job while at the same time the cost of energy, gas, food, liquor and health insurance go thru the roof -

Prices need to fall another 50% to become affordable and for us to see a recovery -

And I guess by recovery what we really mean is the deadman opens is eyes.

Thu, 03/01/2012 - 08:05 | Link to Comment williambanzai7
williambanzai7's picture

There will be no housing recovery until those 46% of unemployed young Americans figure out a way to find a job.

And if they do find a job, it had better be a very secure one. Otherwise tying oneself down with a mortgage and sacrificing mobility would be very ill advised indeed. 

Thu, 03/01/2012 - 08:26 | Link to Comment Ghordius
Ghordius's picture

sigh... if only the half-dozen last presidents that pumped up the house market had invested 5% of their efforts in a good rental market...

Thu, 03/01/2012 - 08:24 | Link to Comment resurger
resurger's picture

There will be a housing recovery when SI-FI (systemically important financial ins) give the houses back to the people at 50% discount from par and 0% interest rate!

How can you give a loan to average joe at ZIRP? That's fucking impossible all banks make money from the usery system or the Net Interest Income (Which is the most important thing)

And if the average joe needs to make money on his deposits, the Fed's cant raise the interest rates because they are up to their necks with so much debt. (Unless they raise the debt ceiling to a 50 Trillion and then to a quadrillion to build the death star that tylers was talking about) and pretend that everything is great, and move on.

It's a vicious circle, there is only one way is that the system RESETS and the big guy's take a loss (WHICH IS NOT FUCKING HAPPENING i.e Mother Fucker Global)

Or the other solution:

Revolution, Blood & Death

 

Thu, 03/01/2012 - 08:29 | Link to Comment duo
duo's picture

The point of no return has been reached.  ZIRP will continue until the dollar dies.  In the meantime, capital will continue to be destroyed and housing will continue to fall.  Why buy now when I'll be able to get a 3% mortgage two years from now?

 

Thu, 03/01/2012 - 08:13 | Link to Comment Hacked Economy
Hacked Economy's picture

Only a few more years to go before I pay off my own mortgage.  At this point, I'm not looking to buy/sell for profit...just thankful I have a home and a job I enjoy.

Thu, 03/01/2012 - 08:16 | Link to Comment cnhedge
cnhedge's picture

are they doing this to justify qe3? so it starts all over again?

http://www.jinrongbaike.com/

http://www.cnhedge.com/

Thu, 03/01/2012 - 08:17 | Link to Comment apberusdisvet
apberusdisvet's picture

New homes at $200K; median H/H income at $50K and falling.  Median existing home sale prices at $168k.

The metric of affordability of 2.5 times gross income indicates that the median home price of both new and used can be no more than $125k.

At least another 20% has to be lopped off the median sales price and that even assumes that that the median household would qualify for a mortgage.  Guess what?  The median household could not.

Thu, 03/01/2012 - 08:23 | Link to Comment Mr Sir
Mr Sir's picture

Does this really mean that Goldman's prop desk is now going long single family homes? In that case, my home is SOLD!! to them.

Thu, 03/01/2012 - 08:26 | Link to Comment alexwest
alexwest's picture

#we continue to expect nominal house price appreciation of around 30% over the next ten years
#

crazy ..

over last years average salary DROPPED ADJUSTED for inflation and that according adjusted BS-stats by BEA/NBER/BLS/etc

so how can anybody in right mind forecast price appreciation despite THAT THERE'S NO EVEN A SMALLEST chance that salaries will grow over next 10 years

so, how is it possible to have housing price up and real salaries down?

I guess guys from GS ECS Global research will be in need of new jobs pretty soon

alx

Thu, 03/01/2012 - 08:45 | Link to Comment Long-John-Silver
Long-John-Silver's picture

Real estate has gone through a Paradigm Shift. People of working age can no longer depend on their ability to retain a job in a single geographic location. They have become mobile. Being mobile precludes anchoring themselves to a home with a 30+ year commitment with no guarantee they could sell it. Now they rent. None of our Politicians, Bankers, or Real Estate salesmen have figured this out yet. Real Estate has a very long way to go before a bottom is found.

Thu, 03/01/2012 - 10:56 | Link to Comment Lucius Corneliu...
Lucius Cornelius Sulla's picture

FNM, FRE and the FHA are the housing market.  I for one suspect that, when push comes to shove, keeping them alive are not going to be top priorities of the Federal Government.  Especially if it comes down to deciding between funding the Department of War or Social Security over housing.  Which I think will eventually happen. 

Having said that, I believe there is a potential for housing prices to fall to cash only values or maybe 50% LTV.  Which is about what private banks without Federal backing would ask for in this economy.

Thu, 03/01/2012 - 08:50 | Link to Comment I should be working
I should be working's picture

What's that Shakespeare line:

To-morrow, and to-morrow, and to-morrow,
Creeps in this petty pace from day to day,
To the last syllable of recorded time;
And all our yesterdays have lighted fools
The way to dusty death. Out, out, brief candle!
Life's but a walking shadow, a poor player
That struts and frets his hour upon the stage
And then is heard no more. It is a tale
Told by an idiot, full of sound and fury
Signifying nothing. — Macbeth (Act 5, Scene 5, lines 17-28)

Thu, 03/01/2012 - 09:30 | Link to Comment trentusa
trentusa's picture

Who would've though Shakespeare was a nihilist? Anything that doesn't decay isn't precious so dont fret too much.

Thu, 03/01/2012 - 09:53 | Link to Comment I should be working
I should be working's picture

Told by an idiot [investment banker working for Goldman], full of sound and fury Signifying nothing.

Shakespeare is awesome you just have to read in between the lines a little bit.

Thu, 03/01/2012 - 11:16 | Link to Comment trentusa
trentusa's picture

Amen brotha- Shakespeare def must be read in between the lines iconography helps bc symbology may penetrate where language dares not tread. Thus Spoke Zarathustra by Nietzsche is an excellent study guide in iconography if u r lucky enough to find a Ph D to patiently explain the symbology to you like Tyler does for us all to peel back the veil of maya everyday---    Each person, each physical object, from the perspective of eternity, is like a brief, disturbed drop of water from an unbounded ocean according to

Maya (Sanskrit ???? m?yaa[›]), in Indian religions, has multiple meanings, usually quoted as "illusion", centered on the fact that we do not experience the environment itself but rather a projection of it, created by us. Maya is the principal deity that manifests, perpetuates and governs the illusion and dream of duality in the phenomenal Universe. For some mystics, this manifestation is real.[1]

http://bit.ly/zxi5ss

Thu, 03/01/2012 - 08:57 | Link to Comment somethingelse
somethingelse's picture

yeah, the housing bottom is still "in sight"  you just need high powered binoculars to see it.

Thu, 03/01/2012 - 08:59 | Link to Comment highwaytoserfdom
highwaytoserfdom's picture

The usury gang is price challanged...   With average housing price norm 3 to 4 times income the 154k average sales price has quite a ways to drop.  With the employment numbers as reported in U6 extreemly high and income reported as ( Paul salary $39,336) 33,000.  The real problem is the failure of letting the systemic risk of usury credit cycle go on..  Look at the Washington DC area income, or the burecrats cost in education creating another bubble.  Typical housing is all important keyanisian debt thinking by usury crowd.  Housing is shelter and not investment where the elders can continue to lever the youngers members with debt. The sad part is all the education, and work experience and training geared to housing in an information reveloution.     A waste...  

Thu, 03/01/2012 - 09:22 | Link to Comment trentusa
trentusa's picture

We are almost close the bottom of the supply adjusted house market? Really? How can we ever find fair market value as a function of supply & demand so long as the banks are holding 500,000 houses off the market in order to keep real estate artifically inflated?

    HOW TO BUY A FORECLOSED HOUSE -

In tax deed states on the day of the foreclosure auction, counties aren't allowed to open the bid on a home at an arbitrary price or as a means to raise revenue. BY LAW, a county must open the bid at an amount equal to the taxes owed. If there are no bidders at the tax sale price then the property must come back for auction at some point at a lower price until FMV is determined through price discovery in a public auction and said property is sold.

DOES ANYONE KNOW WHO OWNS PUBLIC LAND, and if the above is the law then why does the gov't get to hold real estate off the market? THE HOUSING MARKET BOTTOM (FMV IS AN EQUILIBRIUM btw NOT a bottom) will never be reached so long as the gov't withholds supply from the market.

Thu, 03/01/2012 - 09:25 | Link to Comment Ima anal sphincter
Ima anal sphincter's picture

GS is just another cog in this crooked financial terrorist ring called the U.S. Government and world central banks.. They won't be happy until they've stolen it ALL from the masses. My advice is for them to keep "winding the spring" tighter. One day VERY soon they will not be able to handle the stored up force and the "unwind" begins. The kickback is going to be vicious. The only fair thing would be for them to feel all the pain and agony that they have so freely dished-out to the people of this world.

Millions of innocents dead or impoverished.

About 50K of murderous bankers or their designated dick suckers. 5+ billion souls on this earth.

Most of the  battles have been lost by the people, but the war's final outcome will see the end of this current ruling class.

Thu, 03/01/2012 - 09:35 | Link to Comment Cole Younger
Cole Younger's picture

My wife inherited a Condo in Palm Springs. It's in a nice complex with a Golf course, tennis courts, pool, spa, etc. Good location and we had it upgraded real nice. There is not a blade of grass out of place in the complex. It is currently priced at 10K below comparables and we have had only one offer which we took at 14K below comparables. The buyer backed out 5 days later do to buyer's remorse. Likely we will lower the price. Very little real estate foot traffic. At the time of death it was appraised at 139K. After the upgrades (paint, carpet, tile, fixtures, etc.) we kept it at 139K...149K is the comps. Its been on the market for 90 days. Most of the units in the complex are asking between 150k and 168k. During the boom, they were selling for 350K and up. You have to feel for the poor bastards that bought during the boom.

Thu, 03/01/2012 - 09:47 | Link to Comment I should be working
I should be working's picture

Man that sounds great.  I live in Boston and a 1 BR apt costs 400-425k in a good neighberhood.  For 139k I could just pay cash and never have to deal with a mortgage again.

I bet the winters are nicer too ; )

Thu, 03/01/2012 - 10:09 | Link to Comment ddtrader
ddtrader's picture

Take the next "reasonable" offer.  The value is only going to fall further.  I cannot tell you how many people have stated, over the last five years, that they were going to take the house off the market for a year until values stabilized.  The classic is one of my uncles who had a $940k offer on a $1.1MM appraised property in Fla.  He said something along these lines - I am not accepting that little , it is worth over a million.  He just sold for $580k.  First loss is best loss. 

Thu, 03/01/2012 - 09:44 | Link to Comment I should be working
I should be working's picture

I just can't figure out why the middle class wants to tie up their entire net worth in a house.  

If you are rich and want to buy that's great, but housing is not historically a good investment over time.  Add to that unless you are really loaded there is no way to diversify.  If you bought in SF, WDC, Boston or NYC over the last couple years you're ok, but if you bought in FL, NV, AZ you're screwed.

Thu, 03/01/2012 - 09:48 | Link to Comment JohnKozac
JohnKozac's picture

he he he...2013?.....he he he.

More like 2018 at the minimum. With the FHA still handing out almost zero down loans to people who cannot afford them, this RE market will stay depressed for years. Add that to the high jobles rate, over $1 trillion student loan debt burden, and overpriced houses and you have a real mess.

 

Case-Shiller: Home Prices Fell in Most Major Cities

 

http://realestate.aol.com/blog/2012/01/31/case-shiller-home-prices-dropp...

 

Thu, 03/01/2012 - 09:59 | Link to Comment monopoly
monopoly's picture

I think even the sheeples get what is going on with housing. Until we wipe out all shadow inventory, stop subsidizing home owners who should not be owning a home regardless of whose fault it is and bring the median price of a house down to what a family of 4 can afford with a maximum 28% of income to mortgage...and require all to come up with 20% for the down payment and closing costs, nothing will change.

This crap about allowing people to buy a home on 1%-5% down is just bullshit. Until we destroyed our system you always had to have at least 20% down + closing costs to qualify. Oh, and you had to have a job. Govt. will not let us get back to a real down payment because if the banks forced that we would have another 4 years before housing bottoms.

And remember, once it bottoms it means nothing. It will languish for years at those levels, which is OK. We all need a cave, Not an ATM machine.

Thu, 03/01/2012 - 10:03 | Link to Comment ddtrader
ddtrader's picture

If you are looking to sell you better get out now - the market will continue down for another ten years.  If you are looking to buy, rent instead.  Let the market fall, city and municipal finance system reboot, tax system (property) change, then buy after interest rates exlode, thereby killing what is left of the housing market. 

Thu, 03/01/2012 - 12:07 | Link to Comment michael_engineer
michael_engineer's picture

From :

 

Observations from an engineer | ZeroHedge

 

Looking forward to the coming years, what are the reasonable expectations for housing and many other aspects of the world economy if oil production does at some point start to decrease as projected by the Hubbert Curve? Is the banking business model of providing 30 year home loans at risk? One might think so.  There are projections that at some time we may expect oil production to decrease by anywhere from 2 to 5 percent year after year after year (http://www.drmillslmu.com/peakoil-3.htm and see the World GDP Growth chart and comments). Do 30 year home loans (or any long term loans of any type) make good business sense under a 2 percent decrease (year after year after year) in oil production which is the worlds most critical natural resource? Would they make good business sense under a 5 percent decrease (year after year after year)?  The banks may finally be starting to "get it", and long term credit may be tightening as a result.

Thu, 03/01/2012 - 13:15 | Link to Comment andyupnorth
andyupnorth's picture

Goldman, just keep on "revising" your forecasts.  The odds of one of your forecasts being right on are nearly nil anyway.

Sun, 05/13/2012 - 23:30 | Link to Comment qiongqiong
qiongqiong's picture

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