How much lower can housing market go? The answer from an analytic model
Peter Oberois
Nov. 19, 2006

There is panic in the real estate market. Millions of common people bought condos after condos, homes and homes with a hope to flip and make some quick bucks or just use the same as an income generation means. There were thousands of those real estate scams teaching common people how to buy homes for no down payment and then make millions out of that. The slogan was ‘If I could make millions, you can do it’. Some said ‘I will teach you how to make it happen’. Common people from the main street bought real estate after losing their shirt in the 2000 –2003 stock market route with no money down and interest only loan – even with negative amortization.

Anything that bubbles like that always falls flat and that crashing flat stays there for decades. Gold and Silver are ideal examples. The bubble in Silver gave rise to a severe bear market and then it took fifteen years for silver to build base at $5 level before coming back to a level where it should be.

Where can the residential real estate market go from here? We look to an analytic model that is based on advanced time series forecasting and stochastic dynamic programming. The real estate boom continued for a staggering seventy years. The real bear cycle down has just started. The bear market can easily stretch to thirty or forty years. After a sharp fall in prices – about 40 % on the average. The market will go sideways losing value in relation to inflation.

If real deflation hits the economy, the housing market will continue to falter and continue to go down. The biggest problem on the housing market is the pyramid effect. People have taken equities out from an existing home and bought many other homes. Then they have taken equity out from those homes to buy more homes.

This is even worse in commercial real estate especially the rental apartment complex investments. If the economy tanks, it will drag the real estate further down. That in turn will drag the economy down. The chain reaction will continue like in thirties till fiscal correction are reached.

How much lower can housing market go? The answer from an analytic model
Peter Oberois
We look to an analytic model that is based on advanced time series forecasting and stochastic dynamic programming. The real estate boom continued for a staggering seventy years. The real bear cycle down has just started.
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