When will home prices return to the heights seen during the Millennium Boom?
- Not for another decade or more. (47%, 172 Votes)
- Sometime in 2015-2020. (43%, 156 Votes)
- Sometime in 2013-2015. (10%, 35 Votes)
Total Voters: 363
There has been much ado about rapidly inflating home prices in the second half of 2012. Some view this increase as the start of another housing boom.
However, a home price surge the size of the recently busted Millennium Boom is not likely for many, many years.
Historically, home prices have oscillated around the mean price, which is tied to the rate of consumer inflation. There is no evidence to suggest the most recent price increase is anything more than a brief departure from the mean price. Soon enough, prices will sink back to the trendline, as they must.
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The recent surge in home sales and pricing is fueled not by end users but by speculators. This is evidenced by the homeownership rate, which has quickly fallen since the recession due to negative attitudes toward homeownership and generally poor economic conditions. Something stinks when home sales are up and homeownership is down!
Should end users follow the lead of speculators and jump back into the housing market? Only if they have a good reason to do so (purchasing long-term shelter as opposed to purchasing a home as a short-term investment vehicle).
first tuesday insight
Further evidence the price jump is unsustainable and not presaging another Boom: in California, the price increase experienced in the second half of 2012 was concentrated in low-tier properties, the speculator’s investment of choice.
Additionally, California’s homeownership rate has fallen dramatically and continues to do so. At the height of the Boom, 60.7% of Californians owned the homes they lived in. This rate has dropped to fall in line with the historical standard of 54%, as of the fourth quarter of 2012.
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Agent advice
Month-to-month price bumps can be misconstrued as mini-real estate cycles in and of themselves. How can you tell the difference between a momentary price bump and the beginning of a long-term upward trend?
Look for other market indicators, such as:
- a rise in home sales volume, sustained over at least 12 months; and
- increased bond market confidence, evidenced by a consistently rising yield spread.
Neither of these conditions has been met in 2012-2013. Verdict: this is a price bump, and nothing more.
However, potential homebuyers should not be discouraged just because the next Boom isn’t around the corner. Homeownership is best viewed as a means of shelter and not the proper subject of day trading. Those who purchase today to hold for the long-term will be rewarded with a low interest rate over the life of their home loan, as rates can only increase for the next 20 years. This fact alone is sufficient encouragement for end user homebuyers, but has little effect on quick-flip speculators.
Related article:
Re: A New Housing Boom? Don’t Count on It from The New York Times
So, am I to understand that the majority of speculators are holding on to their properties and renting them as opposed to selling for a gain? That would be the only way to explain the diminished home ownership. If they are selling – then they must be selling to homeowners – after all why would another speculator buy when it is there is no profit to be made?
It is a fact that the best (and only) way the Federal Government can pay it’s debt is by utilizing inflation to pay it with cheaper dollars.
Therefore once the economy gets sound again the government ( the FED)will significantly increase interest rates and allow( cause) inflation of around 4% per year.
History will repeat itself and this inflation will force wages up and prices up and of course also the price of real estate.
The most important consideration in the discussion of future home prices is to look at the historic increase of home prices over the last 50 years.
It is a fact that except for the last 6 years (which is an anomaly) that the price of homes has doubled every 10 years. This is the long term trend line for what has occurred (and what will surely occur) under a “normal” U.S. economy. It simply cannot be otherwise.
Since the economy has almost completely recovered and almost completely back to normal the only think now holding home prices down is the remaining backlog of foreclosures which will likely be over in about one year.
At that time it will be back to normal with home prices back to the long term 50 year trend line of doubling every 10 years.
This will quickly bring home prices back to their highest level ( 2006) in about two additional years by the fall of 2016. ( exactly 10 years after their peak for a “lost decade” )
But the key point here is the reality that 10 yeas after that ( 2026) home prices will surely be double what they were at the peak.
By the way it appears as if First Tuesdays authors simply don’t know what they are talking about when it comes to the economic subject of future home price appreciation.
Data may be skewed as home ownership numbers reflect American ownership. Foreign investment in ling term home ownership may not be reflected properly in data and would appear as investment or speculation despite longer term residential purpose. My clients purchase with cash from China and while they don’t rent out to tenants or speculate with flips, their purchase of the home is reflected as an investment purchase
Prices up and ownership down is a reflection of many things. One that is rarely addressed is the crowding out of the typical buyer. I believe most sales are being handled by banks and asset management companies (short sale or REO) who give preference to cash buyers. The is a major crowding out of the traditional buyer who can never get an offer accepted. Agents also prefer cash buyers because the deal is more likely to close as financed buyers are increasingly impacted by the constant inflow of CFPB rules. Rules which also discourage lenders from the lower loan amounts due to severe loan officer income restrictions and an overall regulatory driven increase in cost of lending relative to compliance. Costs which are easily covered for larger loan amounts but not for small loans.
The little guy, the lower end / entry level buyer is at a disadvantage for these and more reasons.