According to an article in CNN/Money, economists at Fiserv Case Shiller Weiss think they have a pretty good idea what’s in the cards for most metros in 2005. Their prediction: Los Angeles will fizzle. Miami will sizzle. The group has a good track record, according to CNN, with a median forecast error is less than 2%. To track housing performance, they look at repeat sales data for a sample of houses in each zip code, past price changes, employment trends and interest-rate trends. They then make adjustments to individual areas to account for other factors that could influence an area’s housing market.
So, what do they mean by “fizzle”? Well, over the past five years home prices in the Los Angeles area appreciated 125%, with prices in a handful of zip codes up nearly 200%. I think for the month of February, the appreciation was approximately 21%. So, to FCSW, “fizzle” is a prediction that prices in the greater Los Angeles area will increase by only 5.8% in 2005, with slightly better appreciation in some L.A. markets and price declines in others. Additionally, remember that housing is a leveraged investment: you get that 5.8% growth on only a 20% investment (i.e., $20 grows as if it was $100, and that $100 grows at 5.8%, effectively giving you a larger rate of growth… but don’t ask me to calculate it!)
Translation: I wouldn’t worry. This is the predicted slowdown. At least they are not predicting a downturn in the market, such as we experienced in the market of the early 1990s. It hasn’t turned us off of looking for a larger place, but then again, you haven’t seen how overstuffed we are in this one!
