Not surprisingly, I’m going to have to agree with both Yale Economist Robert Shiller in this Business Insider interview and Barry Ritholtz at his Big Picture blog in arguing that a housing bottom – if it does indeed arrive in 2012 – will prove disappointing for those expecting gains on their real estate investment in 2013 or 2014.
As shown to the right using the mid-1990s Los Angeles housing market as an example of what might happen to national home prices in the years ahead, housing market bottoms are long drawn out affairs.
We happened to be living in Southern California at the time and had the good fortune to buy a house there in 1995, though, we were just looking for a place to live, not thinking of it as an investment.
I remember the price actually declined by another five percent or so in the year after we bought it and it wasn’t until five or six years later that we began to hear about rising home prices, a bit surprised to learn that the value of our place had increased by $100,000 or more.
But, for the first few years, you were better off not even thinking about home values.
Using the broad Los Angeles price index as an example, even if you had bought at the absolute bottom in February 1996, you’d have had less than a one percent gain a year later.
The index spent a full four years within five percent of the February 1996 low!
Anyone thinking that a housing market bottom in 2012 means that home prices will be higher next year or the year after that will probably be disappointed.
Moreover, given the size of the recent boom and the likelihood of the bust being of similar magnitude, I wouldn’t be surprised if home prices don’t post a substantive advance for the rest of the decade.
![[Most Recent USD from www.kitco.com]](http://www.weblinks247.com/indexes/idx24_usd_en_2.gif)
My business does some work for home sellers. Some didn’t sell all last year and don’t expect to this year so they have moved renters in.
With the tailwind of current record low mortgage rates behind them, if they haven’t reversed the decline by now they likely never will. (in real terms, at least)
However, since their mortgages are in nominal dollars, eventually inflation may cause home prices to eventually rise again above the level of their mortgage balances and they can sell the homes. But counter-acting that is the fact that with inflation will come higher mortgage interest rates, which will itself exert downward pressure on home prices. Simply returning to historical average rates would probably halve the price of the home one could afford.
I wouldn’t look for any good news on this front for many many years.
With average household income declining year to year at a frightening rate, I can’t imagine anyone will ever buy a house again. My generation is simply trying to hold onto their house for as many years as possible. The next generation is living in their parent’s basement.
[...] A Bottom in the Housing Market in 2012 Is Not What You Might Think - Tim Iacono [...]
I think the bottom is in in most locales, but I agree, prices won’t go up much. But if they keep pace with how fast the central banks around the world are printing money, they will. And if the Fed goes QE3, look out. The buck will cheapen versus the rest of the world, and foreign buyers will swarm US shores, mostly the coasts. Which is where the housing is, of course.
The Trouble With Case Shiller, Again
http://wallstreetexaminer.com/2012/01/31/the-trouble-with-case-shiller-again/
“I think the bottom is in in most locales…”
Seriously Lee?
Take a closer look at that chart and note the little “bump” that occurred in 1991; just before prices resumed their fall as the 1992 ressession took hold. Prices continued to fall for another 3 years.
Today, we face even greater headwinds: a serious recession about to begin; ZIRP which can’t get any lower; high systemic unemployment; tax rates which are scheduled to increase 30% over the next few years; and ridiculously high personal and governmental debt levels.
While I think we’ve seen the end of the “crash” phase; prices will continue lower for years…
Hmmm…
Is this a little revisionism, Tim?
I thought you waxed poetic about your short-sale on your first home back in the day in SoCal.
So what was your total return* in SoCal, Tim?
*Screwing the lender is a negative component of total return in my book, Tim
huh?
Housing prices shot up relative to other prices.Now, housing prices have to come down, probably even lower than other prices (due to the mal- investment in housing) to bring about an equilibrium. Or, we can have other prices go up to where housing prices are now. That is essentially what the Fed is trying to do. I rather have housing prices continue to go down, than have the government screw up all prices to bring about a relative equilibrium between housing prices and all other prices. Just my opinion!
[...] Please read A Bottom in the Housing Market in 2012 Is Not What You Might Think [...]
huh?
Okay.
Naturally, having just used all our available cash to purchase a new home the year before that had declined in value since we bought it, well, this helped out quite a bit in reducing our net worth (this was back in the day when, aside from VA and FHA loans, you had to put at least ten percent down). And, after a few other moves were made, a “snapshot” of our assets was taken on the day that the sale closed and the “debt forgiveness” tax bite was relatively small.
Name calling is not allowed.
I still don’t get your beef, but, now you’re starting to creep me out a little…
I’m a first time reader to this site, so please forgive my ignorance, but Beefy Creep does seem to have a point here (a tiny one). Tim writes in the article, “We happened to be living in Southern California at the time and had the good fortune to buy a house there in 1995.” He goes on to say that “it wasn’t until five or six years later that we began to hear about rising home prices, a bit surprised to learn that the value of our place had increased by $100,000 or more.”
Then Tim’s negative commentator dredges up an apparent short sale that took place “the year before,” meaning within that slough of despond which is the point of this post. In light of this [alleged] sale, “good fortune” and “the value of our place had increased” are misleading, since Tim’s family lost the house, and the down payment too, before they could benefit from a market upside. Perhaps Tim felt the short sale was not pertinent to the article, but he could say so response to his detractor in the comments, rather than claiming nervousness because someone is quoting old posts.
Again, I’m a first-time reader and I came to this site from patrick.net, looking for information. If I sense puffery or incompleteness or fudging, I can go elsewhere. DID the author short-sell his featured property in 1996? If so, could he edit the article to note that, while he had moved on, he “was a bit surprised to learn that the value of his former house had increased” etc.? He could also eliminate the double negative of his closing statement, to wit, “I WOULD be surprised if home prices [DO] post a substantive advance for the rest of the decade.”
In reading this article, you’re best off ignoring Beefy Creep because he brought up the unrelated issue of a short sale on a different property that we had purchased years earlier and were carrying as a rental at the time that we purchased the new one.
For anyone who is interested, please see:
http://themessthatgreenspanmade.blogspot.com/2007/07/my-housing-story-part-1.html
and you’ll get the complete picture.
How in Gods name does anyone expect ANYTHING to get better when we import EVERYTHING from china and OUTSOURCE ALL of our jobs?
Keep sipping the wine like you neighbors do and things will continue to degrade. When the nation relies on booze to “live”, this is what you get.