Home Value Forecast Circa 2006

Hindsight is 20-20, and I know I've made a few bad calls over the years. Still, I had occasion to look through Harvard University's Joint Center for Housing Studies' The State of the Nation's Housing 2006 last week, and it has some gems:

"The greatest threat to housing markets is a precipitous drop in house prices. Fortunately, sharp price declines of five percent or more seldom occur in the absence of severe overbuilding, dramatic employment losses, or a combination of the two...With building levels still in check and the economy expanding, large house price declines appear unlikely for now..."

Not that they didn't suspect something was a little wacky:

"Until 2000, national weighted average home prices rose closely in line with median household incomes and general price inflation. Since then, however, house price appreciation has shot ahead of those benchmarks, outstripping income growth more than six-fold from 2000 to 2005."

Not to worry:

"But, when and if house prices do fall, the so-called bubble is more likely to deflate slowly rather than burst suddenly..."

"Over the longer term, the outlook for housing markets is favorable... improvements in the mortgage finance sytem over the past several years, together with stricter inventory management in the home building industry, will help to dampen boom-bust cycles in the future."

Improvements in the mortgage finance system? What a difference a year makes.