'Overly Optimistic' on Housing Slowdown?

As homes remain on the market longer, both sellers and buyers want to know an answer to the question "bubble, or no bubble?" Federal Reserve Chairman Ben Bernanke recently told Congress: "We recognize the risk ... and we are watching it very carefully."

Meanwhile, the Los Angeles Times had a story Thursday about new-home sales dropping faster than expected, according to data from both Contrywide Financial Corp. and Toll Bros. Inc.

Said Toll Bros. Chief Executive Robert Toll to the LA Times: "It appears as though [the slowdown] will last for at least six months more, it may last for two years more. We don't know."

Said Countrywide Chief Executive Angelo Mozilo in a July conference call as reported by the LA Times: "People are overly optimistic about this 'soft landing' as to real estate values."

Said A.G. Edwards & Sons analyst Greg Gieber to the LA Times: "I think things will get a lot worse before getting better."

A story from The Associated Press with additions by The Daily Breeze included similar observations:

"So far, the correction in housing has been orderly, but there is a significant risk that this orderly correction could become more chaotic," said Mark Zandi, chief economist at Moody's Economy.com.

"The housing market has been driven by euphoric optimism about future house price growth. That could quickly change to dark pessimism and we could see sales and prices fall much more than expected," Zandi said.

[...]

"These are going to be challenging times in the housing market," said Robert Bailey, a Santa Cruz broker and past president of the California Association of Realtors. "The market has changed throughout California, and the inventory has increased in virtually every regional market."

— T.J. Sullivan