The opening sentence to this report (pasted below) was spot on!
“The housing correction continues to be like a slow motion train wreck"
But I am a bit more pessimistic than the analyst who wrote the following:
“ Residential investment as a share of GDP has declined from 5.5% at the peak to 4% currently. This has been quite a significant move and the bulk of the adjustment in activity is most likely behind us”
Nah, not behind us just yet—we’re merely warming up…
This comment was a bit closer to reality:
“ For house prices, while the inflation rate has come down a long way from the peak nearly two years ago, it probably has a good way further to run into negative territory. Our own models and the futures markets see home prices declining around 10% over the next two years and remaining depressed for a time thereafter.”
Later the article goes on to discuss a mildly negative consumer wealth effect (due to housing) and the market analysts furthermore contend that as long as the US stock market and employment hold up, US recession will be avoided in 2008.
Personally, I'm much more pessimistic and think (especially with the ongoing credit market problems) we are going to see severe equities problems and a > 10% decline in home prices THIS YEAR ALONE.
As far as the wealth effect and recession are concerned: I believe unemployment will increase dramatically, consumers will pull back and Stagflation/Recession--it has already been baked into the cake.
Oh well, at least these highly paid analysts got the first line of their report correct.