Goldman recently confirmed it has lost the magic touch when it joined the momentum brigade in anticipating a blow out 600,000 NFP number, revising its prior estimate by +100,000 on Thursday, even as the real NFP came out as a miserable dud 24 hours later. Which is why we urge readers to take the following note from Goldman's Sven Jari Stehn, even though conceptually we are in full agreement with its message, with a big grain of salt: "Despite normalization of valuations, we expect excess supply, high delinquencies and the fading boost from housing policies to push down house prices somewhat further in 2010 and 2011." And just like earlier we pointed out the discrepancy between the opinions of two BofA strategists on the EURUSD, and the huge implications from this divergence, so here we observe the inconsistency between Sven's bearish view on the oh so critical to the US economy housing segment, and David Kostin's hope for an S&P at 1,250 by the end of the year (and 1,300 by June 30).
From Goldman US Economics Analyst: 10/22 - House Prices Have Not Bottomed Yet June 4, 2010
US Economics Analyst
•Following their sharp earlier decline, house prices have stabilized since early 2009 and valuations have returned to “normal” levels. But at the same time, temporary boosts from government housing policies are fading and the housing market remains plagued by excess supply and high—and apparently still rising—mortgage delinquencies.
•To gauge what these opposing forces might imply for future house prices, we construct a model for a panel of 20 metro areas. Our results show that house price dynamics are explained by (1) price momentum, (2) price/rent valuations, (3) the change in mortgage delinquencies, (4) the mortgage rate, (5) excess supply and (6) temporary factors, including the government housing policies.
•Given the excess supply in the housing market and rising delinquencies, our model suggests that the composite 20-city Case-Shiller index will fall by 3% over the next year and another 1% over the following year.
•Our model projects the biggest price declines in Las Vegas, Seattle and Portland, due to high homeowner vacancy rates and/or rising mortgage delinquencies. Conversely, we expect modest house price gains in Cleveland, Minneapolis, San Diego and San Francisco.
House Prices Have Not Bottomed Yet
http://www.zerohedge.com/article/no-cheer-housing-bulls-goldman-which-goes-negative-house-pricesThe squid would know.