Just read an interesting article on CNN Money talking about home prices recovering. Now just between you and me, I don’t expect to see home prices back to 2006 levels in this lifetime. What I do expect to see are home prices stabilizing in the next 3-4 years and then small appreciation starting in year 5. Why? Several reasons.
For prices to stabilize we have to have normal homes selling. This means the foreclosures have to fall to 2-3% of the market and short sales vanish. Currently these two categories represent 25-40% of the market depending where you live. Stable markets mean homeowners with some equity in their current homes that allow them to move up to bigger homes, better school districts, shorter commutes or whatever move up means to them.
People have to stop living in fear. When was the last time you made a good decision based on fear? As long as people are afraid of losing their jobs, homes, way of life they can’t make good decisions. I work with distressed homeowners and the amount of bad information out there is infuriating. Fear makes us irrational, so how do you make a rational decision when you aren’t thinking rationally?
Jobs have to return to the United States. Manufacturing jobs fled the U.S. starting in the 1980’s and haven’t returned. We all work in the service industry now which means we don’t make anything. If you don’t make anything, how do you sell anything? Until business sees U.S. workers as valuable and as consumers jobs won’t come back in a big way.
Banks have to get back into the business of lending and storing money. Whatever it is that is making banks money these days it sure isn’t accepting deposits of savers and then lending these monies to borrowers. Tried to get a loan lately? The only loans really getting funded today are government insured loans. Getting a conventional loan is a joke, and this comment comes from a lender.
Homeowners have to face the fact that the value of housing in 2006 isn’t coming back and they homes are actually only worth $600,000 today not the $900,000 they got an appraisal for in 2006. Buyers have to recognize that home prices have dropped but not to fire-sale levels. In San Diego where I live and work, prices are down dramatically but you aren’t going to buy a home for $85,000 no matter what. If that were the case why live in snow country if you could live in the sunshine for the same price. Location still matters, just at a reduced rate.
While I hate to sound so negative about the housing market, I am a pragmatist. People will always need a place to live. Someday the market will stabilize. Will we all be paper millionaires again, probably not but then again having a nice place with good schools to raise your kids isn’t so bad, is it?