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.
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.
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.
Re: A New Housing Boom? Don’t Count on It from The New York Times