In a packed seminar January 30 on “How Far Will the Housing Bubble Burst?”, MIT Economist William C. Wheaton, showed how econometric forecasting models based on historic data were a lot of hooey. The models used to predict housing prices from 1998-2005, many of which were his own, were as accurate as a guestimate–off by a median mile.
“The model says we should have seen (lower) housing prices. But in Phoenix, they went up 80 percent. Eighty percent!” Wheaton said. Similar increases in Southern California, Florida and Washington seemed “totally unexplainable”.
The Professor went on to explain why the predictions were cockeyed.
- Expansion of the subprime lending market. From 1994-2005, subprime loans rose from 1% to 8% of the nation’s total mortgage debt. Yikes! This turned 5 million renters into homeowners.
- Increase in purchase of second homes.
The good news (since the prediction is likely to be wrong again) is he expects another 20% decrease in home prices, including the Boston market.
there are lies, damn lies and statistics (Twain)
Source: Economist explores housing price predictions (MIT); MIT TechTalk article [pdf].
Technorati Tags: Housing Prices, Real Estate Market, Forecasts, Housing Bubble, Real estate, Sellsius, Real Estate Blog
I agree 100%…but try telling that to a real estate agent here in Salt Lake…we have had 2-3 years of great appreciation and they keep touting 25% growth over the next couple years…I have banks calling me up willing to lend me money on equity that isn’t even there. Good article.