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Friday, September 26, 2008


house prices and household formation

david altig takes a different look at house prices into the future, using an economic correlation to household formation. the conclusion is unfortunately broadly the same as implied by a return to price-to-income valuation.

If the ratio for the post-2000 period is to return to its historical value, house prices would drop 21 percent from second-quarter 2008 levels.

this dovetails nicely with jpmorgan chase's estimation of house price losses going forward may look like -- per calculated risk, revealed in the presentation that went along with hoovering up wamu.

JPMorgan presented three scenarios: a base case (with national prices falling 25% peak to trough), a deeper recession (28% decline), and a severe recession (37% decline).

Currently the Case-Shiller futures are predicting a 33% decline peak-to-trough, Goldman is forecasting 27%, and Lehman was forecasting 32%.

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