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Happy New Year!

Business Exchange

Happy, that is, if you’re a renter who’s looking to buy. Evidence is mounting that prices will continue to fall substantially in 2008. Think of it this way: When demand for something (champagne, houses) declines, either the price must decline, or the supply must decline, or a little of both. So far in this housing bust, most of the action has been on the supply side. Builders have slashed production by close to 50%. But existing homes don’t go away, so the supply of them remains oversized.

So the only thing left to give is prices. Sure, the price declines to date may seem big (the S&P/Case-Shiller 10-City Home Price Index fell 6.7% from October 2006 through October 2007, the biggest decline in the series’ two-decade history). But they really aren’t that big considering how prices rose so rapidly for so long. Even at these levels, prices are too high for the average buyer. I think predictions of another 10% decline in 2008 and 2009 aren’t out of line at all. Prices could fall even more. Not rapidly. More like a deadly drip, drip, drip.

As I said: Happy New Year!

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