I thought that economists were saying months ago that the housing market had already hit bottom and we were on the way back up. I guess they were wrong or the economists today are wrong, because new forecasts are predicting at least three more years of price declines before things start turning around.

The problem seems to be excess inventory as well as shadow inventory, or home that are in foreclosure and will be on the market sometime in the near future.

“Whether it’s the sidelined, shadow or current inventory, the issue is there’s more supply than demand,” said Oliver Chang, a U.S. housing strategist with Morgan Stanley in San Francisco, as quoted in a Bloomberg article. “Once you reach a bottom, it will take three or four years for prices to begin to rise 1 or 2 percent a year.”

As of July, there were 4 million homes for sale across the nation, according to the National Association of Realtors, a 12.5-month supply at the July sales pace, even if mortgage rates stayed at their current lows. There are currently about 8 million properties somewhere in the foreclosure process. That will be a heavy load to work off in the next couple years as they come on the market. And that’s not even counting the 3.8 million American mortgage holders who are “very likely” to put their homes up for sale within the next six months if things pick up at all, according to a July survey by real estate tracking company Zillow.

“This has the potential to create a sawtooth pattern along the bottom,” Stan Humphries, Zillow’s chief economist, said in a telephone interview with Bloomberg. “Homes begin to sell and a few sidelined sellers rush into the marketplace and flood the marketplace.”

The median price for existing homes has already fallen to $182,600, a 28 percent drop from the peak in 2006.The Bloomberg article quoted Joshua Shapiro, chief U.S. economist for New York economic firm Maria Fiorini Ramirez Inc., as saying that prices will yet fall 10 to 15 percent before we hit the bottom. Mark Zandi of Moody’s Analytics in Pennsylvania is a bit more optimistic in his predictions, saying that prices will only drop 5 percent in the next three years. Either way, three years is a long time to wait for the housing market to get back on its feet.

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