From USA Today, Why home values may take decades to recover. Their analysis looks at historical home price trends compared to the bubble years. If you adjust prices back down to historical norms and then apply the normal rate of appreciation, it will take years to reach previous highs. Even after we re-attain those price highs, value will still have been lost to inflation.
The article starts with an extreme example of how far prices have fallen. Mr. Wallick of Oregon bought a brand new house in Arizona for $200,000 in 2005. He put $70,000 and took out a 15 year fixed rate loan. The house is now only worth $80,000 and he is walking away.
There are some ominous predictions for those of us hoping to ride out the storm. This quote in particular was distressing:
"We will never see these prices again in our lifetime, when you adjust for inflation," says Peter Schiff, president of investment firm Euro Pacific Capital of Darien, Conn. "These were lifetime peaks."
In previous bubbles the recovery took a long time, but it did eventually arrive. This implies that we may be waiting in vain. Unfortunately predictions like this tend to be self-fulfilling. Hearing this news more people could decide to walk away from their homes, accelerating and deepening the collapse. It certainly does not cheer my heart.
Saturday, December 13, 2008
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4 comments:
If this article is accurate then why bother staying in an underwater house? I am holding my breath to see what difference a new president makes.
It's hard to argue with you. But you will eventually have equity and could get at least some of your money back. In absolute terms we will see the price you paid again, but you have to account for inflation...
Here are reasons to stay in an underwater house:
1. Recourse state and you have income/assets.
2. Your profession would be injured by a poor credit rating.
3. You are only slightly underwater.
4. Despite being underwater, your housing costs are still cheaper than a comparable rental.
There are probably other reasons, but these are the key ones.
Hey anon, well I definitely meet #1. California is non-recourse for purchase loans, but I had to refi out of my original loans. An unscrupulous mortgage broker put me in some awful loans saying I didn't qualify for better (the guy was a personal friend). Later I learned that wasn't true and I got out of them.
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