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TEXT OF INTERVIEW

MARK AUSTIN THOMAS: 2006 might be remembered as the year the housing bubble burst. Home sales declined. Interest rates, which the Federal Reserve had been raising by degrees, seemed to flatten out demand. What can we learn by looking back that might shed some light on what lies ahead in 2007? Nicholas Retsinas is the Director of the Joint Center for Housing Studies at Harvard University. I asked him to put 2006 into some kind of historical perspective.

NICHOLAS RETSINAS: If you just look at the raw numbers of 2006 in terms of sales and transactions, money spent on new construction, it'll look like a pretty good year, probably the fourth or fifth best year in terms of those volumes on record. On the other hand however, it is the year the market changed. It is the year the market changed from being a seller's market to a buyer's market.

THOMAS: What caused that to happen?

RETSINAS: Well part of it was the old adage, if it's too good to be true, it's certainly too good to be true forever. We saw an unbelievable period of house price appreciation. In the last five or six years before say spring of this year, prices were going up on the average of 10 to 15 percent a year. It clearly wasn't sustainable and indeed, it hasn't been sustained. We have record numbers of homes for sale, prices are starting to slip.

THOMAS: Different parts of the country are doing better than others. What are some of the reasons?

RETSINAS: Much of it relates to the economy. For example, some of the areas that have seen some recent price declines are in the Midwest, which really didn't have an overheated housing market, but it has some very serious economic problems. Other part of the country like the Carolinas, for example, parts of Texas, parts of Atlanta, the economy's moving along and the housing market's doing OK.

THOMAS: What parts of the country bear watching in particular?

RETSINAS: Well I think we need clearly to look at those markets where appreciation has been the highest, particularly the two coasts and parts of the Southwest. For example if we put a microscope on say Las Vegas and Phoenix in 2005, 30 percent of all home purchases were purchased by investors. When investors begin to dominate a market, then it's a market more about speculation than it is about consumption.

THOMAS: What happened this year in terms of rents?

RETSINAS: Well after a four- or five-year period of rents trending down, because renters could become home owners, particularly with low interest rates, rents are now starting to edge up, which is going to make it more difficult for renters to accumulate the down payment to be home buyers of tomorrow.

THOMAS: When you look into your crystal ball, what 2007 look like?

RETSINAS: 2007 doesn't look very good form the housing market's point of view. I do think we may be near the bottom. The good news for example is inventories have started to stabilize, but at a high number. So I think we're near the bottom but I think we're going to be at the bottom for a while and if history is any guide, then it looks like this housing market downturn will probably last well into 2007, and it won't be toward the last quarter, maybe 2008 before we see signs of it turning around.

THOMAS: Nicholas Retsinas directs Harvard University's Joint Center for Housing Studies. And in Los Angeles, I'm Mark Austin Thomas. Thanks for joining us. Have a great day.