Moody’s is depressingly consistent. And wrong.

Moody’s Investors Service has thrown cold water on optimistic projections of a V-shaped recovery in the battered U.S. housing market, predicting it could take more than 10 years to get back to boom-level prices, according to

“For many reasons, the rebound will be disproportionately small compared to the decline,” Moody’s said last week in its latest outlook on the residential market. “It will take more than a decade to completely recover from the 40% peak-to-trough decline in national home prices.”

What’s depressing is that Moody’s – which helped get us into a recession by incorrectly (and self-servingly) grading mortgage-backed securities – has been wrong all along.

The company is wrong again.

Here’s why: The analyists are defining housing recovery as a return to the highs of the boom years. That’s not going to happen, not for years. But housing nationally may be recovering now – flat sales with reduced prices amounts to recovery. In Manhattan, recovery – which I define as, at minimum, stability in sales and prices – probably is several months away.

But in the Big Apple and elsewhere, the rate of decline has dropped significantly. I believe that prices on average are 5-10% from the bottom. That’s not true of all price categories or of all units. As I have written previously, the most universally appealing properties priced realistically are not only finding buyers in Manhattan, the buyers are having to engage more frequently in bidding wars.

“The bursting of the housing bubble precipitated a crisis in financial markets the likes of which have not been seen since the Great Depression and plummeted the nation into recession,” Moody’s said.

“The scars that this downturn will leave on the economy and the housing market will be long lasting and persist in nearly all facets of the housing industry, including the demand for homes, ownership patterns, homebuilding, and house price appreciation,” the analysts forecast, then added:

“It will take more than a decade for many measures of housing activity to regain ground that has been lost as a result of the correction: The intense downturn will overcorrect for the excesses in the housing market generated by the boom years.”

Moody’s said the home-building industry will rebound, “but a lingering overhang of inventories, combined with consolidation in the industry and caution on the part of both home builders and lenders to builders, will keep the pace of construction from reaching the peak it achieved at the end of 2006.”

On home values, the analysts said price volatility has been “particularly wild” during this housing cycle, with a giddy run-up followed by the dramatic crash. However, prices “will behave in a much more moderate manner during the recovery.”

According to the latest data available from the S&P/Case-Shiller home-price indices (reported along with other market information in my free biweekly e-newsletter), the prices of single-family homes – not apartments – in 20 major cities rose in June for the second month in a row. The national index rose in the second quarter, the first quarterly gain in three years.

Yet Moody’s predicted home prices “will remain at a persistently lower level than we anticipated prior to the crisis,” MarketWatch related, “and it will take a full decade from the 2010 bottom just for the [Case-Shiller] national index to climb back to its 2006 peak.”

On a regional basis, Moody’s said hard-hit states such as Florida and California will be among the last to recover and “will only regain their pre-bust peak in the early 2030s, well after the nation does.” Meanwhile, a decimated Wall Street will weigh on New York’s recovery, although the state’s overall price decline will be less severe.

“In general, the length of the downturn and the length of recovery in a region will depend on the degree of aggressive lending or overinvestment in housing that occurred during the boom,” said Celia Chen, senior director of housing economics at Moody’s “On the recovery side, states with weaker job growth will also take longer to return to peak.”

Even the traditionally bearish James Grant of the Wall Street Journal has turned into an optimist.

Believe what you want, but I believe that Moody’s track record seriously calls into question its credibility today.

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Malcolm Carter
Licensed Associate Real Estate Broker
Senior Vice President
Charles Rutenberg Realty
127 E. 56th Street
New York, NY 10022

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2 thoughts on “Moody’s is depressingly consistent. And wrong.

  1. I certainly agree with you on what defines a normal real estate market.

    I’m not sure if it was or Moody’s that made the statements in error since I only had access to the report.

    The actual calculations used for an estimate on how long it is going to take to return to the peak prices appears to be just historical appreciation rates applied to today’s values. And… that’s assuming prices do not fall even further…


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