More speculation on how the housing boom will end. One thing for sure. Someone somewhere is going to be correct about the housing market because all the possibilities I can think of have been covered. I would describe this as conventional wisdom regarding how quickly booms go bust in housing, but I would caution that there has been a lot of speculative buying in this boom and these purchases can be put on the market faster than the typical family home. The post below this one covers this issue as well including how the slide might get started:
How Will Home Boom End?, by James R. Hagerty, The Wall Street Journal: When America's housing boom finally ends, don't expect a loud pop. "It's not going to be a big dramatic event," says William Apgar, senior scholar at Harvard University's Joint Center for Housing Studies. Unlike stock prices, the housing market can't collapse in a few days. People can dump their stocks almost instantly, but it often takes months to sell a house. In past housing busts in California, New England and elsewhere, many owners who couldn't get what they considered a reasonable price yanked their houses off the market. The number of transactions plunged but prices fell only gradually, often over several years.
Still, that's little reassurance for Americans who are worried that they bought at the top of the market or for those waiting for prices to ease before jumping in. And the end of the boom is likely to be painful for many people. Among the most vulnerable: people who may have to sell in a weak market because of a job loss or transfer; those with little or no equity in their homes and big mortgages; and those counting on big gains in home equity to make up for a lack of retirement savings. The housing boom has been an enormous boost to the economy, spurring construction, increasing the net worth of millions of families and allowing Americans to borrow against the rising value of their homes. … Economists disagree about how much damage a housing downturn would inflict on the economy. … Predictions that the housing market would falter soon have proved premature repeatedly. Still, many economists believe the boom is now peaking or will do so within a year or so. Few expect a sharp fall in prices nationwide but lots of economists think prices will decline at least modestly in some of the cities along the East and West coasts, where buying has been most frenzied. … How bad could the next downturn be? Optimists say that the pace of price increases will merely slow to a more sustainable level. Many economists say past drops in house prices have been recorded only in places where lots of jobs have been lost. One example is Los Angeles, hit by a rapid shrinkage of the aerospace industry in the early 1990s. In cities with strong job markets, home prices have tended to keep rising, albeit at a slower rate, when the market cooled.
Even so, history shows that house-price declines are less rare than many Realtors suggest in their sales spiels. Richard J. DeKaser, chief economist at National City Corp., a Cleveland-based banking concern, recently studied home prices in 299 metropolitan areas over the past 20 years. He found that 63 of them at some point suffered declines of 10% or more over periods of at least two years. … The median decline in those 63 markets was 17%. … Unless interest rates rise much more sharply than expected, there is no reason to expect a national housing crash, says Allen Sinai, chief global economist at Decision Economics Inc. in Boston. "I don't think this is a situation of boom-bust," he says. But Edward Leamer, an economics professor at the University of California Los Angeles, thinks a housing downturn could "kick the economy into slow growth and possibly an outright recession." He counts 10 declines in residential investment since World War II. Eight of them, he says, provided the early warnings for recessions.
And of course, if you are interested in housing, Calculated Risk should be a regular stop.