Saturday, May 31, 2008

CAR 2008 updated forecast, then vs now.

It seems like October 27th wasn't that long ago, let's see how the CAR forecast has changed from October to April when they posted the updated forecast.



Sales are projected to be right at the same level. But anyone reading housing news for California has seen that the cheap REO and Short Sales are defining the market. The fact that it is mainly these cheaper houses selling means the median price is dropping as well as depreciation. It is becoming increasingly hard for a homeowner to sell their home and cash out, mainly due to unrealistic expectations of what their house is worth. The REO and Short sales are showing that the credit issues are not a credit crunch. Financing is still available and interest rates are low. Going back to down payments, mortgage insurance and providing income documentation will mean that prices will return to levels supported by how much people can prove they make instead of how much they say they make.

I thought the CAR forecast in the face of the secondary market for Alt-A shutting down in August and subprime in March was an amazingly optimistic call. I bet the agents attending the expo to hear the forecast thought it was exceedingly pessimistic. If I was a CAR economist and this updated forecast proves correct I would be very worried that a 24% drop in price still resulted in a drop in sales.

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