Will Housing Decline?

Joshua Pollard, the former head of Goldman Sach's housing research department during the 2008 real estate crash, thinks that homes are headed for a decline:

3 Stages of the home price decline

Unless the calculus of history is a poor guide, there is a 60% chance that home values decline materially, in fact, the correction is already underway. This probability rises when new negative shocks emerges. The home price decline will be defined by 3 Stages:

Stage I: Hot to Cool: Active since Summer 2013*, Price growth is slides across the country as flippers lose money outright in the red-hot investor markets (NYC, San Francisco and Las Vegas); New home absorption rates - sales per community - are declin; investors slow their home purchases; total home sales decline year over year; developers lose pricing power, press outlets shift from positive to mixed about the health of the housing market.

Stage II: Demand to Supply: Small shocks convert demand pools into supply ripples. A first wave of investors begin trimming prices to get ahead of future declines; discounts increase to incentivize purchasers as purchasers increase their delays for better deals; developers reduce land budgets as cancellations tick up; major financial press outlets take a more negative tone toward housing lowering confidence overall.

Stage III: Deflation & Response: Falling home prices create a negative deflationary feedback loop that foreshadows a once-in-a-lifetime policy response. Deflationary economics take full hold; leveraged bets on real estate unwind in quarterly ripples due to the public reporting cycle & asset manager redemption schedules; willingness to lend shrinks; the broader consumer finally understands it is a bad time to buy a home, a shrinking housing market negatively impacts jobs causing recession; the estimated effects of never-before-seen public policy reactions determine when and where prices eventually trough. 

Note that Pollard is trying to start some new sort of project. 

While I did not perceive it in the summer of 2013, I do see the beginning of a decline now. Prices have once again reached the silly levels of 2008. I noticed a house in San Diego, a simple three bedroom house in an older area. It sold for $400,000. As someone raised in San Diego, I am in the common situation of being unable to afford to buy any of the houses I grew up in. Here is the Zillow estimate for the cheapest one of them: La Jolla Home. 

$1.2 million for a simple 3 bedroom house. 

As Herb Stein famously said, if a situation can't continue, it won't continue.