There was some discussion on this site at the end of last year that  predicted that the US would see a crash in home prices, which have spiraled over the past several years.  There were also predictions that this would be the start of a crash in the American economy.  Most forecasters of the American real estate market had expected a definite cooling in the market, with fast growth areas slowing down dramatically in pricing (perhaps some price drops in these areas), but not an actual housing crash.  I thought this might be a good time to update ET on what has happened in the housing markets, and some of the recent thinking on the future.

At this point it appears that while the red hot housing market has cooled, a housing crash is unlikely.

Still, the average median existing-home price jumped 6% from a year earlier to $230,000.

The average single-family home price will rise 3.5% between now and June 2007, says David Stiff, an economist with Fiserv Lending Solutions, which he says is still a decent gain.

In fact while definite cooling has and is expected to continue to occur, other areas of the country that have not benefited from the very strong price gains of the last several years, may now benefit:

But the index also showed that slowing price appreciation is balanced by underlying economic strength, said Mark Milner, PMI Mortgage Insurance's chief risk officer, in a statement. "In the absence of an unexpected economic shock, this makes a gradual cooling of the market the most likely outcome," Milner said.

"We'd reached a point where prices had gotten too far away from economic fundamentals," he added. "A return to a more normalized appreciation climate is a natural outcome."

And even though appreciation is slowing in a number of former hot spots, PMI found that half of these large metropolitan regions will maintain double-digit appreciation rates over the next two years.

Moreover, Yun says Portland, Ore., is seeing its housing market warm up, in part because prices in the city are very affordable relative to those in Northern California, and the area's job growth is strong.

On the East Coast, Yun says Richmond, Va., and Virginia Beach, Va., will benefit as people in the Washington D.C. region decide to cash in on big gains in that hot market to buy a larger home further south at a lower price.

"Baby boomers are buying their second homes now and plan to someday make them primary homes when they retire," Yun says. "Boomer buying patterns will keep a bust from happening in housing and will help shift hot spots to different parts of the country."

This referenced article does expect a 3--6% price decline over the next 12 months in some of the hottest areas that have seen 90%--150% price gains over the past several years, but not a crash.

Overall, the US economy boomed in Q1 2006, growing at 5.6%.  Q2 was expected to slow dramatically, well below 3% (still fine but down), but latest estimates of Q2 are now for 3.3% growth, and an even stronger Q3.  I would say that there is a variety of opinion on the going forward growth rates.  The US markets seem to have two major concerns: first will the new Fed Chairman overreact to trying to slow inflation--the inter-bank rate has been raised 17 straight times, now at 5%, even as some see a slowing economy.  Will he overreact and put the economy in a recession?  (good for Drew who is now smacking his lips over a perceived wonderful pint of bitter, collected in London from yours truely).  And second, the stock markets really don't like the uncertainty in the world with terrorism, and Iraq, Iran and North Korea--most recently shown with the market impact earlier this week when the North Koreans launched their test missles.

I'm still betting on a slowing, but still growing US economy, a Dow above 12,000 by year end, no recession, and Drew paying for the pint. -:)

PS: I don't recall Drew being one of those forecasting a housing crash, and I didn't mean to imply that--just savoring the hope of that pint.