When will home prices rise again?

[Orchidflower]

In case some of you don't use MarketWatch daily and might miss this, I felt many would possibly like to see when the homes in your State will rebound.
Don't open this link unless you are prepared for some not so pleasant news:

Home prices won't regain peak this decade: Moody's - MarketWatch

That map is pretty discouraging.....

 

[LOL!]

In my area, we never had bubble prices, but a slow and steady 1-2% per year increase just below the rate of inflation. This year home prices in my area are up even though there is no inflation. Some homes for sale within 2 blocks are asking 30% more than recent sales. The sellers are dreaming or waiting for a rube from California to pay full asking price. Don't laugh. It has happened in this area.

 

[audreyh1]

Well, I don't know if we need home prices to reach their peak value any time soon - certainly that isn't required for an economic recovery. Home prices are starting to recover in many areas. At the same time, the inventory of available houses has dropped considerably. This is all really pretty encouraging news for the future.

Audrey

 

[DblDoc]

Well, I don't know if we need home prices to reach their peak value any time soon - certainly that isn't required for an economic recovery. Home prices are starting to recover in many areas. At the same time, the inventory of available houses has dropped considerably. This is all really pretty encouraging news for the future.

Audrey

Except this all needs to work its way through the market:

DD

 

[CybrMike]

I've bought 7 houses in the last year. If I can sell these in 2014 at peak prices, I'll be sitting pretty with a 350%+ gain. I'm in Indiana though, so an orange state, not a red one.

 

[Geoffrey]

I'm certainly no expert when it comes to real estate, but it seems to me that home price appreciation may face a stiff headwind when interest rates revert back to the mean. I wonder how many homes would be sold at today's prices if mortgage rates went back up the say 7 percent, and whether the rate increase would have any significant effect on how much sellers could reasonably expect to receive.

 

[F4mandolin]

Of course...if you are already a home owner and don't plan on trying to make money off selling....the prices staying down are fine with me....keeps the property taxes lower.

 

[Independent]

I assume they are talking about nominal prices, not CPI or wage index adjusted. If that's correct, it seems that the big drivers for getting back to peak prices are the nominal growth in wages and whatever happens to interest rates.

In the long run, house prices have to be controlled by rational buyers' decisions about what percent of their gross incomes they are willing to commit to mortgage payments, and by rational lenders' decisions about how much they are willing to lend, and at what rate. During the bubble, there were a lot of "irrational" decisons by both lenders and borrowers. I hope we don't go back there. So all we can do is wait for wages to go up enough to justify those prices, recognizing that rising wages are likely to be partially offset by rising interest rates.

I don't know how anyone can calculate either future wages or interest rates with any degree of accuracy, but I can believe "a long time".

 

[audreyh1]

IMO talking about getting back to "peak" prices is just noise and has no relevance to the economic recovery. It doesn't really matter how long that takes.

What does matter is a) when does it stop getting worse (and it has stopped) and b) when does it start improving - and signs are also that it has. So that will help the rest of the economy going forward, not hurt it.

Audrey

 

[caninelover]

I agree with Audrey, I think housing needs to stabilize but not necessarily return to where it was.

But the chart the Db put up is frightening at the same time. I'm still shocked that the quantity of "prime" mortgages is so small compared to Alt-A, sub-prime. Scary. Its probably a good thing that we don't return to the "peak" anytime soon, if that was how we got there in the first place.

 

[walkinwood]

The housing market is very local, so while this data may be useful from a macro point of view, it probably does not describe what's going to happen to your property value.

 

[W2R]

Well, I don't know if we need home prices to reach their peak value any time soon - certainly that isn't required for an economic recovery. Home prices are starting to recover in many areas. At the same time, the inventory of available houses has dropped considerably. This is all really pretty encouraging news for the future.

Audrey

It looks like selling prices for homes in my neighborhood may be starting to recover. (Below is my own amateurish graph of medians derived from these selling prices, which are available in the newspaper here each week). The local realtors association says that the number of sales is rebounding, too. I hope we can sell our homes in 2010!

 

[IndependentlyPoor]

Full disclosure: I am renting now so this is biased by my self-interest, nevertheless...

Do we really want to return to an era in which the average family can't afford to buy any (let alone the average) house? Unless you already own a home, why would you think that unaffordable housing is a reasonable goal for public policy?

Below is a graph of the ratio of the median house price to median income from 1969 through 2008.

Do we really want the median house to cost 5x the median income? Even 4x?

Sources:
http://www.census.gov/const/uspriceann.pdf
Changes in Median Household Income - Table A5
Detailed Income Tables

Thanks to
Median Housing Prices and Wages: The Underlying Fundamentals Suck : Mike the Mad Biologist
where I cribbed this from.
​

Here is the Case-Shiller price to income data

This shows that we are getting back to something like the historical norm.

Another way to look at this is the price to rent ratio. Since renting does not involve speculation, some believe it a better measure of the true value of housing. Here is a chart of the Case-Shiller data

From
Calculated Risk: House Prices: Real Prices, Price-to-Rent, and Price-to-Income​

 

[Orchidflower]

I, too, am living in an area just like LOL! is where home values have gone up 1-2% steadily--although from my neighbors who just put their house up for sale, the prices have dropped 6% in the month of August. Seems like this picture can turn on a dime, so that steady escalation can drop fast.
And, yes, I have seen a rube from California pay waaaay over-price for a house here 4 years ago. Fixed it totally up and is now trying to get another $50K out of it (that's after being on the market for awhile and dropping it about $30K already). Locals were shocked someone would overpay that much to begin with, so they'll have a loooooong wait to pull the money they are looking for out of the locals here. Probably ain't gonna happen either. Gotta love those Californians, tho!

 

[W2R]

Below is a graph of the ratio of the median house price to median income from 1969 through 2008.

I can't imagine buying a house that is four times my salary, much less five times my salary. I bought my present house in 2002, at 2.65 times my salary. Even though mortgage interest rates have plummeted during the past 30 years and still seem to be going down, still I wonder who can buy these expensive homes.

 

[IndependentlyPoor]

still I wonder who can buy these expensive homes.

Short answer: Nobody
Long answer: Anybody who can/could get "creative financing": ARMs, negative amortization loans, NINJA loans, imaginative appraisals.....
Just sign here. Don't worry. Everybody does it.

 

[youbet]

If housing prices rise because the economy has improved in general (much lower unemployment, rising productivity and wages, stocks up on good business prospects, etc.), that's good news. If housing prices rise regardless of a continuing poor or sluggish economy, that's bad news.

I hope housing prices rise as a reflection of an improving economy and citizens having the $$$ to bid home prices up a bit. But I hope home prices do not rise because of speculation, govt incentives and that sort of thing.

 

[73ss454]

I hope the home values in Fla drop to nothing as I get a kick watching the local governments raise the Millage Rates as the home prices drop. House drops 100K and taxes go up, what a joke.

 

[WhoDaresWins]

A house down the street from me(in western PA) sold about a month ago for the full asking price. It is a nice place in a desirable area in a medium sized city not hard hit by the recession. I am hopeful that if I decide to retire and sell in a couple of years that I can break even(maybe). I think I am going to go ahead with plans to put in California closet systems, maybe trick out the garage with Gladiator storage, too. Make the place more sellable. I need to quit watching so much HGTV!

 

[audreyh1]

If housing prices rise because the economy has improved in general (much lower unemployment, rising productivity and wages, stocks up on good business prospects, etc.), that's good news. If housing prices rise regardless of a continuing poor or sluggish economy, that's bad news.

I hope housing prices rise as a reflection of an improving economy and citizens having the $$$ to bid home prices up a bit. But I hope home prices do not rise because of speculation, govt incentives and that sort of thing.

Another reason for home prices to rise is because supply has been drastically cut. New houses built drastically down.

Audrey

 

[Moemg]

think I am going to go ahead with plans to put in California closet systems, maybe trick out the garage with Gladiator storage, too. Make the place more sellable. I need to quit watching so much HGTV!

I watch so much HGTV that I already know how I'll stage the house when I sell .
Remove half the furniture
Clean closets and remove half of clothes
Hide all personal items
Float candles in the pool
Bake cookies
Set the table
Hide every small appliance in the kitchen No Coffee for you or toast
Buy all new neutral linens


Do I have it done pat or what ? Thanks HGTV !

 

[youbet]

Another reason for home prices to rise is because supply has been drastically cut. New houses built drastically down.

Audrey

Good point Audrey. Still, I'd much rather see housing prices rise because demand increases due to a generally improving economy than because the housing supply shrinks.

Example: A new strain of termite destroys half of the current USA housing supply causing the price of the remaining stock to increase. Do we have more wealth? Well, no. We have our current wealth minus half the value of the current housing supply.

If an improved general economy allows citizens to bid up the price of housing, that's good. More wealth chasing the current housing supply is pushing prices up. And supply will soon be stimulated to increase.

 

[Delawaredave5]

Are you sure about median price/income data ? I find it hard to believe that house prices went from 1x to 5x income. Link below suggests it was much more consistent.

http://www.google.com/url?sa=t&sour...y0Hr3K7YhEF3qIgGA&sig2=0ruZDfxtcLctk2LUdn-jRQ

Full disclosure: I am renting now so this is biased by my self-interest, nevertheless...

Do we really want to return to an era in which the average family can't afford to buy any (let alone the average) house? Unless you already own a home, why would you think that unaffordable housing is a reasonable goal for public policy?

Below is a graph of the ratio of the median house price to median income from 1969 through 2008.

 

[Midpack]

IMO talking about getting back to "peak" prices is just noise and has no relevance to the economic recovery. It doesn't really matter how long that takes.

What does matter is a) when does it stop getting worse (and it has stopped) and b) when does it start improving - and signs are also that it has. So that will help the rest of the economy going forward, not hurt it.




Audrey

Put me in Audrey's camp.

1. If you're a first time homeowner, depressed prices are a good thing.
2. If you own a home and want to sell and buy another, it's neutral. While you will get less than peak for the home you sell, you'll also pay less than peak for the one you buy.
3. If you a lot of your net worth wrapped up in an inflated home value, you're probably worried about this data. If you sell you will have less net worth than you'd hoped, but if you buy something (presumably downsizing) it will be cheaper than it would have otherwise been.

I have always owned less house than the bank says I can afford and I don't count my home in my net worth, since I am always going to own a home presumably.

And frankly I am not hoping we rush back to bubble pricing on homes and the risk of another meltdown or bubble bursting, is anyone? Someone said this is not a recession, it's a reset - and I hope it is...

 

[rescueme]

In case some of you don't use MarketWatch daily and might miss this, I felt many would possibly like to see when the homes in your State will rebound......

Don't know; don't care.

Guess I'm lucky, being older, retired, and debt free. I'm also in my "terminal home" and have no plans to move (unless due to health, but I can't plan that ).

Life is good...