The future of home-price appreciation
Home prices are expected to hit bottom soon and then start to climb. Here's the outlook for appreciation through 2020.
After its historic decline brought the global economy to its knees, the U.S. housing market is gearing up for a long-awaited recovery. Real-estate experts expect home prices to hit bottom in late 2010 or early 2011 before — finally! — heading north again. But what shape will the rebound take? Are we in for another boom? Or will we have to settle for sluggish growth? Here's the outlook for home-price appreciation through 2020.
The trajectory of real-estate values will vary a great deal from one market to the next. But home prices at the national level should appreciate at "pre-bubble" rates once the market re-establishes its equilibrium, says Kenneth Rosen, chairman of the Fisher Center for Real Estate and Urban Economics at the University of California, Berkeley: "I'd say prices are back to (increasing) 1 or 2 percent more than the inflation rate over the next 10 years." Although that might seem like peanuts to those who watched prices skyrocket during the first half of the past decade, it's actually in line with long-term averages. When adjusted for inflation, American home prices increased by an average of about half a percentage point per year from 1890 through 2008, according to data compiled by Yale University Professor Robert Shiller.
Modest increases in home prices will be supported by larger paychecks, says Mark Fleming, chief economist of First American CoreLogic. "In the long run, house prices basically go in lock step with wage growth," he says. With the unemployment rate holding near double digits, that might not seem encouraging. But Fleming says that while the labor market is a late arrival in modern-day economic recoveries, jobs always return in some form. This time around, he expects high-tech companies and research-based industries like biotechnology to lead a resurgence that eventually sparks employment and wage growth throughout the economy. Inflation-adjusted personal incomes should increase roughly 2 percent a year from 2010 to 2020, according to Moody's Economy.com.
- MSN Money: Personal income falls across America
The "echo boomers"
Meanwhile, demographic forces should boost demand for housing over the next decade, according to Harvard University researchers. Members of the "echo boom" generation — children of the baby boomers — are "entering their peak household formation years of 25 to 44 with more than 5 million more members than the baby boomers had in the 1970s," Harvard researchers said in a June 2009 report. "The echo boomers will help keep demand strong for the next 10 years and beyond." While some of this demand is likely to flow into the rental market, the preferred tax treatment of mortgage loans should help keep the American infatuation with homeownership alive. And, if tax rates increase as many expect, the value of the mortgage interest deduction will go up as well.
A more restricted flow of credit should prevent another housing bubble from forming anytime soon, says former Federal Reserve governor Lyle Gramley. Banks, hammered by souring loans, have raised their lending standards for even well-qualified borrowers. And federal regulators have taken steps to eliminate some of the reckless lending practices that precipitated the crash, such as banning lenders from making a higher-priced mortgage loan without first scrutinizing a borrower's ability to repay it. Tight mortgage credit "is going to persist for quite some time," Gramley says.
Still, bubbles will build
Still, housing bubbles haven't been driven to extinction. That's because the real-estate market is cyclical. Regional housing markets have gone from boom to bust for as long as people have had mortgages. And because the booms generate so much wealth for homeowners, investors and influential industries — like homebuilders — it's unlikely that Congress can work up the courage to snuff them out with tough regulation, says Mark Calabria, a former senior Senate staffer who now works at the Cato Institute.
|Find a low mortgage rate|
"It's not an economic question, it's a political question: How do you build institutions that push against bubbles when you know they are going to be incredibly popular when they happen?" Calabria says. "And we all know Congress does what's popular, not necessarily what's right." Nothing in Capitol Hill's effort to reform financial regulation suggests that things will be different this time, he says. Insufficient regulation is one reason he expects another real-estate bubble to surface within 15 years. "I would bet my life on it," he says.
- On our blog, 'Listed:' New-home sales still falling
So what's the best way to play an asset that will appreciate 1 or 2 percentage points above inflation during periods of stability but can swing wildly in times of imbalance? Simple: Buy a house because you'd enjoy living in it, not because you expect blowout returns. Then you'll never be disappointed by its quarterly statements.
1234, you're just other self appointed expert...you must be an obama fan, I can tell becuase your so out of touch..LMAO, 90% sitting in their comfortably mortaged homes...I hate to bring facts into the discussion, but, only 67% of americans are homeowners. The unemployment rate is 10%, adding in the discouraged workers and marginally employed, basically all the people still looking for jobs, thats 17.3% of the population... and the number of unemployed just 'unexpectedly rose' again in March...sorry for all the anti recovery propaganda. Sounds like the "recession" has not touched you in any way, well, at least that you care to acknowledge.
So, lets see, your "status" must be...blind deaf and dumb?
The true reality is, if you recall, that the government was behind the 150% mortgage lending a few years ago. I was getting daily sales calls from mortgage brokers offering these outrageous loans and promising that they would give me a mortgage for more than my home was worth. Unfortunately for them, I already had 50% equity in my home and I wasn't falling for their game. Here are these people offering to give me another hundred thousand or so on top of what I already owed?! I would have had to be crazy to do that. But, unfortunately, many people did and they found themselves ultimately upside down in their mortgage. My home is worth $100,000 less than it was during that time, but I still have nearly 50% equity because I refused to take it out and fall for the obvious con game.
The government was telling these agencies to offer the loans, letting out the money string and then......BANG they pulled it in. Lend, lend, lend....STOP!!! This is deliberate to control the market so that the masses have no control over the housing market, or indeed, their own lives. There are those who refuse to dance to the music that the puppet masters insist upon playing. Keep to yourselves, don't play the game, and you will be safe.
And don't blame it on the realtors or mortgage brokers or anyone else, they too are puppets in this game.
This is just irresponsible! Since, in March, more foreclosures hit the market than any month, EVER!, I know the doom and gloom gets old but, the housing market still has about a 20% correction ahead. So, is the market going to rebound? Things we know; 1. More foreclosures than we have seen so far await 2. Buyer credits expire in 2 weeks 3. Interest rates are picking up, and will continue to since the fed is going to inflate us out of the debt crisis 4. Home values are still 20% above where they should be.
These articles are guaranteed to bring out all the self appointed experts that won't hesitate for a second to blame whomever they feel screwed them in the past. It is the perfect sounding board for anyone with a grudge to proclaim that someone "else" is to blame for all their problems.
Not that it is needed, as you can pretty much determine each contributor's status by reading their comments, but anyone commenting here should have to complete a quick questionnaire that is viewed along with their comments that asks what state you reside in? do you rent or own? have a job or out of work? etc. So we can "understand" where you are coming from. Even among all the anti-recovery article bashers, it's quite amusing how so many "experts" have distinctly different views as to who or what caused their problem.
Someone said a few pages ago, and this doesn't coincide with the percentage of doomsayers responding here, but whether you like it or not, 90% of the people in this country are employed, are living comfortably in their mortgaged homes, and managing to get along in life without major incident. It's that vocal 10% of the population that is in a bad way and feel better when they can stand up on the soap box and complain to anyone that will listen.
I am not involved in any way with the Real Estate industry, but I can't understand why people are blaming Realtors or anyone else in the industry for their problems. You don't want to spend money on that over priced house, then dust off your balls and don't! Why no outrage towards new car salesmen? Appliance or furniture salesman? You want to look at a good (bad) example of depreciation, look no further than your garage. Ever study the consequences of new car financing? If someone told you to jump off a cliff, would you? if someone told you to spend over 50% of your income on housing, would you? Stop blaming others for your bad decisions. Look in the mirror America, welcome to your problem.
David, you are so right. "We have met the enemy, and he is us."
We are hemmoraging $400 Billion American dollars into the black hole of the "global economy" each year. Dollars that can only return through trade. Because they are not we must borrow our own dollars (yes bobbyfff, they don't magically turn into other currencies) from our trading "partners" and pay them interest as well. In order to compete with the global economy we must reduce our standard of living to that of these foreign nations, a task eagerly accepted by most Americans, it seems.
There isn't a REALTOR,appraiser or bank who could affect the national or world economy alone. This crisis has been building for a long time and the blame must be shared by everyone. But REALTORS didn't go out looking for home buyers, the buyer decides to look, they write an offer,they took out the loan and signed enough documents all along the way to know exactly what they were doing. How do we know it wasn't the big screen TV (or 3) or the new car (or 2) in the driveway or the two week vacation funded by their home equity loan that caused someone to fall behind on their mortgage? The fact that my home value has fallen hasn't in the least affected my ability to pay for it. If I lost my job yes-that would be an issue, but even in the worst of times-today, 90% of the people are still employed.
Anyone who bought a home before 2004 is still doing fine-their home is still worth more than they paid for it. Five years from now people will have equity in their homes and the potential for a lot of equity if they bought any distressed property in the last 2 years. You have to live somewhere and pay something whether you own or rent. You are paying someones mortgage even if you rent so why not pay your own!
Reading through this "pie in the sky" article was not helpful for anyone. We still have housing foreclosures on the rise, banks spending the "tarp" money on other overseas investments, the commercial real estate bust is expected this fall into early 2011, and unemployment continues to rise.
Most properties are underwater---many through no fault of the homeowners, as entire neighborhoods are over mortgaged for the current value of the homes. Unless you plan to be in your home (or the one you plan to purchase) for the next 15 years, you are throwing good money after bad. Would you continue to buy a stock that is dropping being unclear where the bottom is?? Even banks are encouraging homeowners to walk away vs helping them out......trends, hopes, and "pie in the sky" analysis from college professors will not change this facts in the near future.....
Here's the problem:
America loaned European allies huge sums of money to fight WW1. They bought our goods but were never able to repay the loans.
Each administration in turn passed this problem to the next administration, under the table. Obama will do the same.
WW2 increased the amount of loans to many of these same nations. Again they bought our goods but to this day cannot repay the loans. The sole exception is Great Britain which only recently fully repaid these war-debts to us.
They were allowed to keep those 'dollars' to stabilize their weak currencies, relying on those holdings as a "reserve" against the failure of their currencies. This allowed them to rebuild their own economies with the assurance against failure. This worked well up until the 1970's.
After the war the American economy grew into the strongest in history, with the dollar the "gold standard" of all currencies, and was freely accepted worldwide, even by our enemies. Nations holding large amounts of our dollars realized that they could buy more goods from nations other than the U.S. , when offering U.S. dollars instead of their own weak currencies. In the early 70's the U.S. experienced its first serious trade deficits.
Foreign nations, large and small, which were constantly being offered trade relations by the U.S., realized the above fact and began to trade with us not for our goods but for our dollars, which were more valuable if spent in the emerging global market than if spent back for U.S. goods, which were much more expensive.
This began a "dollar drain" out of the U.S. economy into the global economy that continues unabated to this day. Instead of being a bolstering "reserve" currency the U.S. dollar has become the substitute or default currency for high level international trade among the many nations that have large holdings of it.
The sad irony is that the Treasury Department along with the Fed keep count of all dollars ever put into circulation by the U.S. and uses the gross amount when formulating monetary policy. It is estimated that more than half of all U.S. dollars now circulate outside of the U.S. , with no sign that they will return any time soon.
This leaves us with a shortfall of dollars in our domestic economy, which must be backfilled with borrowed or newly printed dollars, which of course increases our total debtload. This proliferation of debt reaches all levels of the economy and brings inflationary pressures in the markets as well as pressures on taxing authorities to raise taxes in order to maintain services and programs.
The rest is easy to figure out (I gotta go to work).