Tuesday, March 03, 2009

How low will the stock market go?

Read the whole thing:

How low will the stock market go - Megan McArdle
Incidentally, if you think that people still have a vestigial view of housing as an investment asset rather than a consumption good with residual value, this implies that housing will substantially undershoot as well. Right now, what consensus there is on the housing market thinks that it will fall just about half again as far as it has fallen, to the historical average. But if it follows a stock-like pattern, you should see it plunge to about 50% of the historical price-to-rent ratio, which has generally stood around 1.1. That implies prices well below where they were in the 1990s.

A ratio of 0.55 seems too low, but 0.8 doesn't seem out of the question. With rents falling, that means housing prices would drop at least another third if they overshoot badly on the downside.


Civis Ordinarius said...

I fear that the prediction is accurate.

Certainly the Obama administration is not doing very much to grow the economy.

Ron Ballew said...

That prediction being correct is what I'm worried about.