Predicting Home Prices Is Now Impossible

When Robert Shiller, co-creator of theS&P/Case-Shiller Home Price Indices , speaks, he tends to make headlines, and yesterday was no different.

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Claiming that he wasn't making any predictions, he predicted that home prices could fall another 25 percent.

"That wouldn't surprise me at all," he hedged. And there was the headline, tragic as it is.

I happened to be at the conference yesterday where he said that. In fact, I was a speaker/panelist at the Standard and Poors "Housing Summit 2011: Boom, Bust and Beyond." And, no offense, but that wasn't the headline. What really struck me was what he said right before that.

"Statisticians deal with things that repeat themselves. This housing boom and bust is so historic and unprecedented, you can't forecast the future because you have no comparison."

That was not only the headline, but the theme of the conference, as I sat on a panel with economists from S&P, Experian and Columbia Business School. Chip Case was there as well, disagreeing with Shiller on several points.

Audience members, largely from the finance industry, kept asking the same question in different ways, 'When is this all going to get better??'

One by one, we panelists opined on headwinds and tailwinds, but never really answered. This is something of a shift from just the past few months, when the economists who cover housing seemed to be suddenly more bullish.

But now we have a new dip in home prices, which is putting more borrowers in a negative equity position. There is more concern of more borrowers hitting that "stress threshold," as one panelist put it, where they just quit paying on their loans.

We already have millions of borrowers who are not current on their mortgages. They haven't hit the foreclosure pipe yet, but many will, and the panelists seemed most concerned about this huge glut of properties that will not just hit, but continue to plague the market for years to come.

This as the Treasury released a lackluster report on its own mortgage modification program and then punished several big banks for poor performance cutting off the program's financial incentives.

By far the biggest concern among questioners and panelists alike was lack of buyer demand. The demand that should be there is pressured by fear, tight credit and under-employment.

"Even with recent job growth, we still have 7 million fewer people employed today than at the peak in 2008, and the unemployment rate remains high at 9.1 percent officially, but a whopping total of 15.9% are underemployed or have given up their search," notes housing analyst John Burns.

This "wage-less recovery," he argues is largely behind the lack of buyer demand, despite much-improved affordability.

But all real estate is local, right? And all these national numbers that folks like me spew don't have any footing in local reality, right? Yes, that may be true when it comes to the numbers. All real estate is local, but consumer confidence is national, and that trumps the local numbers.

I have to say, leaving yesterday's conference, I felt a strange unease, not because we talked about the same barriers to recovery that I talk about every day of the week, but because all these experts who are supposed to tell us when it's all going to be alright...don't have a clue.

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