Readers might want to check out this article on SeekingAlpha: Residential Housing Investment And The Macro Picture. There is a chart showing "Residential Investment Cycles, 60 Years." Even the Feds are now saying that housing is having a bigger impact on the economy than previously thought.

Jay I checked out your blog entry on the 2007 outlook. I agree with the assessment that overall DC area prices are down about 10% and that the exurbs have seen more depreciation. Some specific neighborhoods are down 15-20% others are fairly flat.

I think it is optimistic to expect volume to be higher in 2007 than 2006. The idea that there is a great deal of pent up demand because of the low 2006 volume doesn't have a lot of statistical backing. Housing turnover from 2002-2005 was remarkable and historically unprecedented fueled by low interest rates, loose or nonexistent lending standards, exotic financing, and a psychological mania. Volume in 2006 was only low when compared to the bubble years.

Volume in 2007 is likely to decline further as prices continue to decline. Homebuilders will slash prices more than existing homes and that will steal market share from the resale market. With prices continuing to drop skittish buyers will delay purchases for fear of purchasing a depreciating asset. I expect the mortgage market to get significantly tighter with new guidance and MBS markets regurgitating sub-prime and exotic loans.

We have seen volume stabilize this winter but I think this is largely attributed to the amazingly warm weather for the last couple of months. I wouldn't rule out a significant tick up in volume and prices in the early spring of 2007. If this occurs it is likely to be a sucker's rally with prices and volume drifting lower for the remainder of the year. The volume has fallen dramatically but is still high when measured in terms of months of supply. There are a lot more rental listings on the MLS than last year which may be waiting to list for sale in 2007. As for the fishhook in inventory that may just be some expirations being relisted. I don't expect to see inventory begin to soar in March.

Uhoh... I see a fish hook in the inventory numbers. Looks like the inventory bottomed out and now seems to be on the rise. Question is, will demand rise to keep inventory numbers flat? Or will supply exceed demand like it did in 2006 and send prices lower?

Yes, Merv, the comments function is broken, but my blog is about to be switched to a new format soon with more features, filters, and opportunities for networking.

The photo is not perfect, but was the best I could do with my limited resources of not being able to upload pictures to it, but having to use code to get all of my photos to show.

Hi Jay,
I followed the link and noticed that the image is in two parts. Is that your intent? Also, a data base error message is showing on your comment script.

Call or email me if I can help.

I'm having a bit of trouble with the comment script. :-(

What to do....

Merv,

My 2007 Forecast for Northern Virginia and DC Metro Real Estate is up and running. Bottom line: a lot more transactions this year for the reasons outlined in the article. Please tell me what you think my friend. I put a lot of thought into it. I do hope you'll link to it or give it some exposure....I'm getting more aggressive about blogging regularly and providing meaty articles for consumers.

The other one your readers and yourself may find interesting if you haven't already shown it is the graph of declining inventory at this URL: http://www.justnewlistings.com/arlington-virginia-blog/2006/12/22/inventory-of-virginia-real-estate-falling-quickly/