47% of readers said home prices will not return to Millennium Boom heights until at least another decade. Close behind, 43% claim prices will soar sometime in 2015-2020. 10% said prices will reach Millennium Boom levels before 2015.

While optimism is good for lifting the spirits, first tuesday is more interested in being realistic.

Here are the facts:

The home prices seen during the Millennium Boom skyrocketed past the historical mean price for real estate. Those prices were a result of a bubble the likes of which had seldom before been experienced.

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Agents must keep these two pieces of information in mind. Just because the pricing bubble occurred during their practice, does not make it a normal occurrence. It was an anomaly born of the perfect storm of economic factors.

The factors contributing to the housing bubble were varied and complex, including:

  • decades of falling interest rates (we will not see this again for another 20-30 years);
  • over-use of adjustable rate mortgages (ARMs);
  • an over-abundance of low- and no-down payment loans;
  • the federal push to increase homeownership rates beyond sustainable levels; and
  • deregulation of Wall Street bankers.

These factors will not converge again until the lessons learned during this recovery are forgotten. This will take at least 15 years.

The government continues to introduce stringent regulations — such as the forthcoming qualified residential mortgage (QRM) rule — in order to forge a more stable housing market. The home prices seen during the Millennium Boom were anything but stable, and thus regulators will seek to avoid another bubble of such size.

Therefore, those readers who claimed prices will take more than a decade to reach prices seen during the Millennium Boom are certainly correct. Any price bumps in the meantime will be much smaller and of shorter duration.

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