Friday, September 26, 2008
JP Morgan sees a 58% decline in California
JP Morgan has put out this little diddy on their predictions on the housing market. The are offering 3 scenarios, and basing price declines on those. Their current estimate for peak to bottom price declines for California is 44%. We are already at 44.2% (according to DataQuick) so that forecast is pretty well out the window at this point. We have winter approaching, the mother of all financial meltdowns underway and a backlog of foreclosures taller than the Petronas Towers. Their next set of numbers is based on a deeper recession. That guestimate is a decline of 48%. Again, at this point you don't have to be a brain surgeon to conclude that we will probably hit that by the end of the year. Currently prices are losing about 5% per month. The last prognostication is based on a severe recession. It predicts a 58% decline. That is probably closer to what we will actually see.
So far this downturn has proved every estimate, even the most pessimistic to be overly optamistic. Everyone has missed the mark so far even the doom and gloomers. A 58% decline is probably a little too optamistic also. Back near the beginning of the crash. Global Insight estimated the IE to be 65% overvalued. I don't know whether we will see a 58% decline or a 65% decline in the median. But I'm sure it will be that range somewhere. And if the recession is really severe it could be even higher. So far most of the foreclosed homes are due to speculators that bought over their heads. A severe recession would create another wave of foreclosures due to job losses.