While some people think now is a great time to buy a new home because interest rates are so low, there are experts who continue to advise caution. Euro Pacific Capital CEO Peter Schiff says home prices have not bottomed out yet. In a recent Wall Street Journal piece, he even goes so far as to suggest that home prices will fall at least 20.3 percent – and may drop even further.
Home prices must drop to come back to the trend
According to Peter Schiff, home prices must fall another 20.3 percent in order for the cyclical pattern to match the historical trend. However, he admits that even that won’t necessarily be the floor upon which plummeting home values crash. Considering that the U.S. has recently seen a negative Case-Shiller home price index, it’s clear that we’re in the middle of a housing double-dip. Marry that to other economic data on jobs, retail sales and industrial production and Edward Harrison of Credit Writedowns believes that while the U.S. may technically be in economic recovery, that recovery is weak at best.
The Fed is delaying the inevitable
The artificial means through which the Federal Reserve is attempting to prop up the housing market is at best a diversionary tactic, suggests Schiff. High levels of private and public debt – as well as the continually bleak job market – have clouded the economic picture for the U.S., and only by allowing economist-defined historic cycles to play out will the nation get out of trouble without further delay.
Peter Schiff’s view of home prices and the Case-Schiller is that even a 10-percent decrease beneath the 100-year trend line is reasonable over the next five years, even if mortgage rates rise back to customary levels. Even cutting the decrease in half (to 5 percent) would be welcome. Ultimately, Schiff believes that when rates stay low, the dips will be smaller, yet inflation will rise.
Some say buy now
Despite Peter Schiff’s warning that home prices are going to fall significantly, some believe the grass is greener on the other side. Hedge fund manager Bill Ackman says ignore the naysayers, because houses are now “a screaming buy.” Ackman says that low interest rates, the already significant value loss and cheap government loans are reason enough.
Schiff doesn’t think the dollar is in a good place, either