Yesterday I told you that we would look at the forecast of home prices on a broader basis than a few individual analysts. "Home Price Expectation Survey" done by Pulsenomics talks to over a hundred of the leading analysts in the country. People who know what they are talking about. Then they mesh their answers together. So it is not one person saying, "This is what we think." Or one organization saying, "This is what we think.". What they do is take over a hundred of the leading analysts in the country and say, "What are your guesses going forward over the next few years?" Then they take all of those hundred plus projections and mesh them into one number.
The analogy I like to use when talking to you is if we had a jar of jelly beans in front of a room of a hundred people, if any one of those people guessed how many beans were in the jar, some would guess way too high, some would guess way to low. But if we asked all hundred people to guess and then we averaged out all of there answers, we would come up with a number real close to the number of beans in that jelly bean jar. That is what the Home Price Expectation Survey is.
Pre-bubble, the normal appreciate in real estate was 3.6 percent a year. During the bubble, from the first quarter of 2000 to the second quarter of 2006, appreciation shot up to 10.4 percent - triple what is normally would be. Well obviously, that was an anomaly.
What happens after an anomaly? A correction. So during the bust, prices dropped on an annual basis of 5.7 percent. But according to the Home Price Expectation Survey, prices over the next couple of years are going to go back to a 3.3 percent appreciation on an annual basis.
Tomorrow I am going to be talking about the bulls and bears in this survey, and their projections.
All comments are appreciated.
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