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Remember when leading real estate analysts
forecasted a housing recovery and return to housing market growth? Or when the
government promised that the $8000 home tax credit would stop the decline? Or
when monetary experts recommended printing more dollars in the form of
stimulus to stabilize prices?
All of it was for naught:
The besieged housing market has even further to fall
before home prices really hit rock bottom.
According to Fiserv (FISV – News), a financial
analytics company, home values are expected to fall another 3.6% by next
June, pushing them to a new low of 35% below the peak reached in early
2006 and marking a triple dip in prices.
Several factors will be working against the housing
market in the upcoming months, including an increase in foreclosure activity
and sustained high unemployment, explained David Stiff, Fiserv’s chief economist.
Should home values meet Fiserv’s expectations,
it would make it the third (and lowest) trough for home prices since the
housing bubble burst.
Source: CNN Money
Foreclosures and unemployment are the elephants in
the room when it comes to housing. If there are not enough jobs being created
to offset those being laid off and new people entering the workforce, then
people find it increasingly difficult to make their monthly mortgage
payments. Couple that with an already saturated foreclosure market with a
shadow inventory of millions of homes sitting unoccupied and you have the
makings of a serious housing decline.
But the experts continue to predict a return to
housing prosperity starting next summer:
Even after the housing market begins its comeback in
mid-2012, the recovery is predicted to be modest at best. Nationwide, Fiserv
is projecting that home prices will climb just 2.4% between June 2012 and
June 2013.
Just like they did in 2008, 2009, and 2010:
Housing Markets Will Roar Back in 2009
The nation’s foreclosure
hemorrhage has finally slowed and 2009 should see a significant decline in
foreclosures as buyers return, pushing home prices up and fueling a real
estate recovery. (link)
U.S. Housing Recovery Delayed to 2010
“My prediction is we’ll probably recover on a seasonal basis.
It’s generally accepted that the homebuilding industry is off the mat
and on the road to recovery.” (link)
Home prices should bottom out in 2011
Most experts expect home prices to
bottom out in 2011. That should be welcome news for home buyers looking to take
advantage of the lowest possible prices and sellers who have endured three
years of steep declines in property values. (link)
For an example of how severe these types of cyclical
downturns can be, consider the massive declines experienced in real estate
prices in the United States during the Great Depression:
During the 1920s prices reached their highest level
in the third quarter of 1929 before falling by 67 percent at the end of
1932 and hovering around that value for most of the Great Depression.
Source: Social
Science Research Network
As we’ve opined from the beginning of the housing crisis, we need
look only at Japan for a modern day example to see how far we can fall and
how long this can take:
It’s hard to imagine the average price of a
home losing 40% – 60% of its value during the course of this real
estate bust. For those who say its
impossible, we point you to the Japanese real estate decline of the 1990′s,
which saw Japan’s property values lose more than 70% from top to
bottom, and the Japanese have yet to recover.
Developers, both residential and commercial, can
build all they want, but if nobody is buying or renting, then it really doesn’t mean much. In the coming years, we expect to
see hundreds of residential developments sitting without residents and
continued commercial vacancies.
Real estate is not bouncing back any time soon
– perhaps for a decade or more.
Don’t fall into the trap of expecting recovery
because expert analysts and Realtors say prices are stabilizing or headed
back up.
We remain in the middle of the worst economic and
financial crisis in the history of our nation. While there may be isolated
pockets of sporadic growth on a month-over-month basis, the long-term trend
is one of sustained decline. A 50% to 75% price collapse from peak to trough
is not out of the question – though it may be outside the realm of
possibility for many.
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