Sorry, But House Prices Are Still Too High And They’re Going To Fall

We’re on our way to a second leg down in housing prices, says Barry Ritholtz, writer of The Big Picture a founder of investment research firm Fusion IQ.

Why?

In short, because house prices are still too high.

Even after a plunge of more than 30% from the 2007 peak to the 2009 trough, house prices still did not fall to their long-term “fair value” level relative to incomes and rents of the past century. Over the next year or so, Ritholtz expects prices will resume their fall and drop at least another 10% before bottoming.

What are the factors that will continue to drive prices down? Mainly, an ongoing imbalance of supply and demand.

Basically, we still have way too many houses for the current level of demand. It’s true that houses are more “affordable” than they have been for decades, but many of the folks who might be interested in buying houses have lost their jobs or are working off huge debt loads accumulated in the past. And that means that they’re not queuing up to buy still-over-priced houses again.

Normally, after a bubble, prices not only return to the mean but crash right through it, and Ritholtz thinks that that may be possible again this time.

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