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April 9, 2010

Forecast: 6 years 'til home prices return to peak

PriceForecastMap.JPG

Fiserv Case-Shiller map

 

If you're waiting for real estate prices in the Baltimore area to get back to their pre-housing-bust peak, don't hold your breath -- unless you can hold it for six years.

That's the message from Fiserv, which provides the data used for the Case-Shiller index and has put together a price forecast with Moody's Economy.com. They predict that prices in the Baltimore metro area will bottom out in the last three months of this year -- dropping about 22 percent in total -- but won't return to their previous peak until the summer of 2016.

It could be worse. Much worse. Fiserv expects that Orlando and Sacramento won't equal their price peaks until -- wait for it -- after 2039.

But it also could be better.

"In fact, our analysis projects that some markets are poised for a relatively fast recovery, including some areas that never experienced large declines in prices," said David Stiff, Fiserv's chief economist. "Markets that could see prices come back within the next few years include Pittsburgh, Pennsylvania; Columbia, South Carolina and several metro areas in Texas, Washington and upstate New York."

First American CoreLogic had a report out recently that predicted how long underwater borrowers would need to wait to get abovewater. No quick and easy way out of this mess.

Not the best way to kick off a Friday, but hey -- at least the weekend's just around the corner.

Posted by Jamie Smith Hopkins at 7:00 AM | | Comments (20)
Categories: Housing forecasts
        

Comments

The only way prices go back to their peak in 6 years is if there is MASSIVE inflation. Home prices should not appreciate more than the inflation rate. I think it will take much longer before prices go back to the peak. Try more like 10 to 15 years with the rate of inflation. A 3% year gain is sustainable.

At 3 percent gains a year, an area that dropped 22 percent would need about eight-and-a-half years to get back to the peak. It would be between six and seven years at 4 percent. (Hope my math is right.)

I agree with Frank. Until the housing bubble began, home prices historically grew at the inflation rate. With a 22% loss, it would take about 9 years to break even with a 3% annual growth rate. If inflation is lower than 3%, it could take much longer. If inflation is higher than 3%, people are going to have other things to worry about.

Do not forget the pending change in population by age. You have a baby boomer generation who up until last year still had the largest chunk of the home buyer population pie. I do not think you can make predictions of home prices 6 years down the road without at least considering this.

Good point, Brett. Do you expect widespread attempts to sell or downsize?

I also agree with Frank's assessment. And would like to add -- some neighborhoods will never see 2005-2007 prices again, as the prices were artificially inflated in the first place.

I think this is all a bit too gloomy. The "boom echo" generation is now in the age range of 18-31, just entering their prime homebuying age, and they are 50% larger than the boomers who are their parents. Plus, the new home industry has been decimated by this recession and it will take them years to catch up.

Wayne makes a good point. Demand is out there.

I think the linchpin though, is affordability. In a world where free money is gone, the next generation will not be able to buy debt as easily as before. As such, a purchase of a house or other major purchase will have to be backed by actual cash.

This is a huge ceiling on home prices moving forward and one that will take time to work through. In addition, interest rates can only go up. That too will effect affordability and put pressure on housing appreciation.

I don't know if they will ever reach their peak? I would say that a large component of the reason for the "value" in homes was the VAST availability of credit and artificial liquidity that resulted in the marketplace. Unless Barney Frank et al start pumping more dough into FNMA/FHLMC and spurring hotshot mortgage start-up shops who ultimately offload on the secondary market, homes will not appreciate in the same fashion as before.

Someone brought his pom poms to the blog.

Is it just me or does there appear to be a lot of red and yellow in the population centers?

Considering that I bought at the end of last year

and considering that I'm about average

and considering that the average person stays in their first home 7 years or so...

This is great news. Thanks!

Six years? That's laughable, prices won't be back at 2005/2006 levels for 15-20 years. Incomes simply won't support those peak levels. I don't see the economy recovering quickly, and I see housing stagnating for years to come. A 2-3% appreciation rate on housing is about what we'll see in the next 5-10 years, and that won't get us anywhere near 05/06 price levels.

Can I also maybe get paid for prognosticating a few years ahead? I get paid today and in a year everybody forgets what I said. And it was just a prognosis anyway ;)

This report also assumes we will hit a bottom at the end of this year. I just don't see that happening either. I think we have another two years before the foreclosure mess clears out. As long as there are distress sales that undercut non-distress sales, values will not begin to appreciate. There are still millions of foreclosures that have not made their way on the market. It takes over a year for the foreclosure to complete from start to finish. Defaults that begin today won't be on the market until next year. REO's that are currently on the market are foreclosures from last year. The pace of foreclosures have continued to increase year over year. How can values hit bottom if foreclosures continue to rise? I guess since the recession has been over since last summer home values have to go up, right?

I won't be surprised if there is another foreclosure spike few years down the road as a result of the 2009-2010 tax credit. It is clearly the "panic buy" mode right now out there.

The numbers are in. Looks like foreclosure filings hit another all time record.

http://www.bloomberg.com/apps/news?pid=20601206&sid=a0OljkCr_BFQ

I guess this is what happens when people buy houses they never shouldn have bought with loans the banks never should have given them, and all in a blind faith that gravity would never kick in.

When housing recovers from its latest boom and bust cycle -- I say that will be mid-2011 -- price appreciation will return with a vengeance to many areas.

The fastest to appreciate will be the traditional hotspots in the sunbelt and the sandbelt. Beneath the mania, there was a fundamentally sound reason traditional buyers and investors overheated those markets five years ago -- there is a continuing, real demand caused by people wanting to live there.

But there are two more years of foreclosure overhang to clear off the books first. In the second year (2011) appreciation in single family residences will begin in earnest. It will be DRAMATIC in some years. And this kind of price inflation will far outpace the standard CPI.

That's one of the reasons housing inflation was long ago removed from the commonly reported CPI -- it tends to skew the inflation rate of other, less exciting goods and services.

i dont agree that prices will go up with just 3% (with inflation rate) after droping 30 percent.

it should grow at atleast 5 percent. 3% inflation rate + 2 percent from improved employement.

people does not take in account that what will be effect of employment improvement.

it will not match peak level but within 2-3 year it will be somewhere in middle of current prices and peak prices.

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About Jamie Smith Hopkins
Jamie Smith Hopkins, a Baltimore Sun reporter since 1999, writes about the regional economy. Her reporting on the housing market has won national and local awards. Hopkins is a Columbia native and has lived in Maryland all her life, save for 10 months spent covering schools in Ames, Iowa.
She trained to become a wonk by spending large chunks of time as a geek and an insufferable know-it-all.
Baltimore Sun articles by Jamie
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