Median Price Expected To Fall

This year, for the first time since 1950, the median price of homes in the U.S. is expected to fall 1-2 percent, according to a story that appeared Sunday in the The New York Times.

Also in Sunday's NYT, was a column by Robert J. Shiller, the respected professor of economics and finance at Yale and author of “Irrational Exuberance."

In his column, Shiller addressed the rosy outlook that has gotten many recent homebuyers into trouble — the expectation that their homes would continue to soar in value just as these properties did during the first half of the 2000s:

This expectation would mean that a house valued at an already high level of $650,000 in 2005 would be worth more than $1.5 million in 2015. For most people in 2005, it would also mean that they should buy a house soon, or forever be excluded from owning one — and that it would be better to stretch and buy the most expensive house they could afford, to capture the huge profits of homeownership.

Now, of course, prices have been falling, and our survey over the last few months shows that in Los Angeles and San Francisco, the median 10-year expected price increase among recent home buyers has come down to 5 percent a year — a number that is likely to decline further if prices continue to drop. As price expectations fall, homeowners lose the incentive to pay off a mortgage on a home they are realizing is beyond their means. They decide to default. We thus have the beginnings of a mortgage crisis.

Some of Shiller's points were hammered home by today's announcement that the national inventory of for-sale homes jumped to 9.6 months in July:

A for-sale inventory greater than six months is generally considered to indicate a buyer's market -- this statistic indicates the length of time it will take to deplete the for-sale inventory at the current sales pace. The existing-home inventory has climbed 31.5 percent since July 2006, when there was a 7.3-month supply.

— TJ Sullivan in LA