Could True ‘Housing Recovery’ Take Over 10 Years?
Too Soon To Call Housing Bottom?
HREU Students…read this repost (from another blog) and let us know what you think……
In Fort Meyers Florida, a home that sold for $500,000 in 2006 may now be worth only $205,000. The % of decline from the peak in Ft Meyers is 59%. Listen carefully to this very sobering fact, it would take appreciation of 144% for the homeowner to get back to the purchase value of $500,000.
To get to 144% appreciation at an average rate of 6-7% it would take over 20 years to recover the equity. OVER 20 YEARS!
In Akron OH, a home that sold for $250,000 in 2006 may now be worth only $130,000. The % of decline from the peak in Akron is 48%. it would take appreciation of over 92% for the homeowner to get back to the purchase value of $250,000.
To get to 92% appreciation at an average rate of 6-7% it would take over 13 years to recover the equity. OVER 13 YEARS!
In Riverside California a home that sold for $500,000 in 2006 may now be worth only $300,000. The % of decline from the peak in Riverside is 40%. it would take appreciation of around 66% for the homeowner to get back to the purchase value of $500,000.
To get to 66% appreciation at a historical average rate of 6-7% it would take around 10 years to recover the equity. ALMOST TEN YEARS!
This is a very scary fact that I haven’t heard much talk about. The simple fact that appreciation has to almost be double in some cases than the depreciation is VERY chilling. Recovery as defined in the dictionary is: “a regaining of something lost or stolen”. Equity has been lost. To recover that lost equity it may take more than 10 years in many hard hit areas of America. A decade is a long time to be underwater. Throughout the last decade, people got used to refinancing every few years. They would pull out equity and pay off credit cards or use the cash to do home improvements. Equity is gone and so are the days of 20-30% annual appreciation. It’s like shoots and ladders. Going down is quick and sudden. Climbing back up, takes time and effort. Money is easy spent yet hard to save.
The surplus of homes for sale is now over 2.0 million, mostly existing homes, and will still be over 1.0 million by the end of 2010 even if housing start increases are slim and household formation returns to non-recessionary trends. The surplus a year and half ahead will be partly due to the excess building in 2003-07, partly due to the still depressed, although recovering economy, and partly due to lower housing demand from reduced net immigration, real estate speculation and willingness to buy second homes.
Combined with the new wave of foreclosures that are being initiated, I predict housing will not be stable or see decent appreciation for several years. See inventory chart below as published by the Wall Street Journal on May 21, 2009.
Investors and speculators buying properties does NOT deplete the supply as reported by the Wall Street Journal on May 21, 2009
Though not every cash sale involves an investor, the investors often use cash because they can close quicker and get a better return. In the Phoenix area, for example, about 38% of April sales of single-family homes were all-cash deals. In Punta Gorda, Fla., the figure was 67%, and in the Las Vegas area, total cash sales were 39%.
Barclays Capital estimates that banks and loan investors owned 765,500 foreclosed homes as of April 1, up from 629,100 a year earlier. The inventory is expected peak at about 1.3 million homes in mid- to late 2010, according to Barclays.
The investors are no panacea to the nation’s housing woes. When the market improves, many of them could put their houses up for sale, reinflating supply.
“All this investor buying isn’t depleting supply, it’s only shifting it around,” says Mr. Allen of Gorilla Capital.
On Friday January 30, 2009 Robert Shiller said:
“It is quite possible that house prices fall more strongly than they did during the global economic crisis of 80 years ago. The real estate crisis could last 10 more years.”
Source: YouWalkAway.com
![[real estate inventory banks]](http://s.wsj.net/public/resources/images/MI-AW811A_INVES_NS_20090519185326.gif "Could True Housing Recovery Take Over 10 Years?")
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I know it is implied but I want to make it clear to those people who read it, and still read that the 6 % is the return of INCREASE to expect, THAT IS HIGHLY UNLIKEY if not nearly impossible. People need to really understand the legs that were put under the BOOM market of the last 5 years was LENDING and the EXPLOSIVE outcome that LENDING did to the rate of climb on the housing market. The Lending has gone back to sane, safe and real… so home ownership will go down.
All the speculators (avg Joe’s and Jane’s) were buying houses and then just re-listing them, I mean think about that for a min.. WHAT in the HELL were they thinking, and everyone one doing that at the same time Created an artificial DEMAND (that is well gone and in large part of the reason we are returning to trend or overshooting and dipping below trend for a year or two or ??
Bottom line, If you go and look and draw the TREND LINE from SAY 1980-1994 and then just keep that trend line and then go in and add the years, and prices on the X and Y axes you will see where your area of real Estate is LIKEY TO Go to or BELOW for the years coming, 2010-2015 and then depending on things that are just not foreseeable at this point, either point lower or flat BUT any rate of climb above trend is not going to be in housing, in fact I am think we are over due for a long lasting SLOWLY DECLINING trend line, so resulting in housing prices being what they were in 80’s by the late 20teens, and early 2020’s we will have to come back visit this blog to see who was correct and who was all wrong, and I am fairly confident in that outcome. Sad as it might seem, it is in fact a good thing… Thank you for taking time to read, PLEASE post your thoughts, new info = new answers and ideas are shared. But have a thesis please.
Hi Chuck,
I found this….thought you would appreciate the info:
http://www.oftwominds.com/blogjune09/depression06-09.html
if the link isn’t hot…cut and paste.
Tim