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Home Price Decline of 7.5% to 10% This Year Becoming a Reality

Late last year and again in early 2011, I made my prediction that U.S. house prices will fall between 7.5% and 10% in 2011. I’m sticking with that prediction and see analysts that had first been predicting a flat year for housing prices starting to make house-price loss forecasts for 2011. Real estate info compiler Zillow Inc. reports that the average price of a home in the U.S. fell three percent in the first quarter of 2011 from the fourth quarter of 2010. It expects home prices to fall nine percent total for 2011. Michelle Meyer, Bank of America’s senior U.S. economist, predicts that U.S. home prices could fall five percent or more this year. Robert Shiller, co-creator of the S&P/Case-Shiller Composite 20-City Home Price Index, says that U.S. home prices will fall five percent to 10% this year. According to his index, home prices have fallen 33% so far from their July 2006 price peak. Most disturbing, about one-third of all U.S. homes that have a mortgage on them are worth less than their outstanding mortgage. I’ve been involved in real estate and stocks for 30 years. I’ve been analyzing the economy for just as long. And, in that time period, and in my studies, I have never seen an economic recovery without a corresponding recovery in the construction and real estate industries. Given that we have finished a 29-year down cycle in interest rates, how can housing prices possibly recover in light of rising long-term interest rates? Hence, you can see why I’m so suspicious about the apparent economic recovery we are currently supposed to be experiencing.

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