Every week we receive literally hundreds of questions from HREU Students…(and future students). We welcome all questions and are happy to help.

(Would you would like to schedule a FREE Coaching Call with a Harris Real Estate University coach? Go here now.)

Here is the Question Of The Week:

“Dear Tim and Julie,

In my real estate market homes have depreciated more than 20%….in some markets homes are worth 30%+ less than they were worth only a few years ago! Matter of fact my own home is now worth far less than I paid for it in 2006. Everyday I come across sellers who are in the same position as me. Just today, I met with a seller who was $200,000 upside down in their home. The seller asked me if it made any sense for them to simply..’wait it out’ for the market to come back…

So, my question is..how long will it take for homes to be worth what they were in 2006-2007?….in other words…when will home values truly recover?”

Tim and Julie’s response:

The simple answers are…. years (and never). As in 10-20 years depending on your market. In some markets the homes will never be worth what they were in 2006-2007. The idea that homes don’t appreciate is a new concept for most of the country. But, the reality is in many parts of the country….there will never be a housing recovery in the true sense of the words. Homes were artificially valued based on once in a lifetime circumstances.

Lets use this recent article from the Orange County Register…using Southern California as an example:

An economist at the Moody’s credit-rating agencies has a new report out saying that you better not hold your breath waiting for a quick return to peak pricing for housing in California.
Economist Celia Chen thinks California pricing won’t regain its old peak before 2030. We decided to try to put that into perspective with the help of our trusty spreadsheet and some DataQuick data.

If annual gains were:	New peak	In months
3%	Oct 2027	226
4%	Mar 2023	170
5%	May 2020	137
6%	July 2018	114
7%	Mar 2017	99
8%	Mar 2016	87
9%	Jun 2015	77
10%	Nov 2014	70
15%	Dec 2012	48
20%	Jan 2012	37
25%	July 2011	30

Let’s look at Chen’s call in Orange County terms. If she nails that 2030 prediction, that will mean that local housing will average annual gains of 2.7% percent for the next 21 years from January’s cyclical median-price low of $370,000. Let’s say those are slim profits. Compare that to other historic upticks for Orange County’s median selling price …

• 3.6% — Annualized gain made in the 20 years ended in July. Curiously, price have exactly doubled since July 1989, amid another great buying frenzy that ended badly.
• 8.5% — Annualized gain from the bounce from last cycle’s bottom (January 1996) to new peak (April 1998.)
• 11.7% — Annualized gains generated from the 1996 bottom of the last housing downturn to the June 2007 peak of $645,000!
• 17.6% — Highest average annual return in a 5-year period in DataQuick’s records. (60 months ended March ‘06)
• 20.8% — Highest average annual return in a 3-year period in DataQuick’s records. (36 months ended Feb. ‘05)

Want to make your own prediction, based on expected yearly profits going forward? See the chart at right that mixes annual rates of hosuing gains and when they rate would bring Orange County back to its June 2007’s peak of $645,000!

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