When will housing prices recover? A national look.

Crystal Ball with HouseThis post is partly a follow on to Ardell’s earlier New Bottom Call post and comments on where our greater Seattle / Bellevue area home prices might go over the next few years.

When people ask me “How soon are home prices around here going to recover?”, I have been saying that I don’t think they will ‘recover’ for at least 3 to 4 years.

The question usually comes from someone who wants to sell, but is having a hard time dealing with the fact that the value of their home is down about 20% from the peak in summer 2007 – especially if that is when they bought it. Of course if they had bought it in early 2002, the value would have run up about 85% before it peaked, but it is truly much harder to take a loss than it is to take a gain 🙂

The next most common person asking the question is a buyer who is trying to decide if he or she is going to make money or lose money on their investment in a home. Recent history would certainly give one cause to pause on that question.

Of course there have been all kinds of predictions about which way the housing market is headed, and many of those predictions are colored by what is going on in the writer’s home market. But recently a friend sent me a very interesting analytical presentation of what is going on in the market, which included a map graphic showing what that analyst thought would happen. The chart was prepared by Moody’s Analytics, a big player who has a huge interest in figuring out what is most likely to happen, so I thought it was worth sharing with you. Here’s the chart, which is page 13 from the presentation linked at the end of this post.


This is a pretty fascinating chart. Note that some areas near us are predicted to recover to their previous highs within the next 2 to 3 years. And for some of the hardest hit areas, full price recovery may take 20 years.  Factor some inflation against that and I’m not sure it is a recovery.

In our own Greater Seattle / Bellevue area, it looks like their prediction is recovery to 2007 price levels in the 4 to 5 year timeframe at best. Still, all in all it doesn’t sound too shabby – that would be about 5% a year from here, or more like 3%/yr if it stretched out to the long side. My guess is that this recovery rate would be back-end loaded – lower (near zero) appreciation rates near term, and higher rates later on as the national economy really gets rolling again. We’ve got a lot of unemplyment to work off before that happens.

The whole presentation is linked here in the 2010 – Housing Recuperates presentation from Moody’s Fall 2009 Economic Outlook Conference. In the chart on mortgage default rates on page 10, the left axis is CLTV – Current Loan to Value Ratio; the chart is a little hard to understand unless you have that information set in your decoder ring.

Don’t get too hung up on month-to-month fluctuations in reported median prices.  As Ardell’s chart clearly shows, even with a county wide mass of data, the reported median can jiggle up or down a few percent.  Our median for the 16 months shown is about $380,000 +/-5%, or swinging about $20,000 on either side in any given month.  In January we had a nice 5% blip up in the condominium median price, but for February it was right back down where it had been most of the time for the past year.

26 thoughts on “When will housing prices recover? A national look.

  1. Chuck- Your charts are fine- I’ve always liked doing them. However, they have a 50/50 chance of being right as to what happens next in our economy. Today driving around Bellevue where I used to have my office made me think that a lot of things are coming to life. But then, sunshine heals everything. J-

    • Thanks for that info, Chuck.

      Although, I have the same feelings as Jerry as to what will happen next. There just seems to be so much uncertainty but then again, we always go through these cycles. 🙂

      No point in not being optimistic, right? 🙂

      Kind regards,

  2. Hi Chuck,

    Your post confuses me a bit. You wrote this in the comments to my post:

    “Ardell. I agree that both Buyers and Sellers should assume flat prices for the next three or four years…”

    And then in this post you say:

    “I have been saying that I don’t think they will ‘recover’ for at least 3 to 4 years.”

    Seems like you are saying prices will stay flat, and get all the way back up to peak pricing, in the same 3 to 4 years.

    I don’t see a day where people won’t be upside down relative to 2007 peak pricing, except that people who need to move while in upside down position will strategically default or short sell. I don’t think peak pricing will be back for many, many years to come.

    The conditions that caused the run up, loose lending, will not likely be brought back in order for peak pricing to be possible. While 3% increase per year for 7 years would equal back to peak, that assumes no down years of 3% to 5% in the mix. That is not likely. Every year up is not sustainable for the next 3 to 5 years.

    Running out to meet clients, but thought maybe you could resolve my confusion as to the seemingly contradictory statements by the time I return.

  3. Good point Ardell. The early phrase “don’t think they will ‘recover’ for at least” would be better phrased “don’t think they will start to ‘recover’ for at least”. That would make it better represent what I say and think, and what I wrote later in the post.

    The Moodys chart says 2014 to 2019 for us to recover to the peak. I doubt we’ll see significant price appreciation before 2014, and as you point out, we may have some jiggle up and down in the meantime.

    I’ll fix my phraseology as soon as I can get WordPress to give me back my editing controls – seem to have a problem there.

  4. Thanks Chuck…I’m with you on that. I love the phrase “you can’t be smarter than the market” that I learned in CA where just about anything goes.

    I think some homes will be back to peak pricing in 8 years…but not all. I’d like to do a study of newer homes vs older ones, separately. Maybe come Fall I will. Seemed to me that when volume decreased, the newer homes (2 story build from 1990 forward) suffered less than the older ones. I think obsolete styles will become even more obsolete by the time the market recovers, and we have an awful lot of obsolete home styles, especially on The Eastside.

    I don’t think all homes will move in unison from here.

  5. I’ll be interested in seeing the study, Ardell. Not sure I’d bet that way. My expectation is that the bigger divergence will be between house pricing and condo pricing, as the new pressure on fully funded reserves and the new tightening of FHA guidelines keeps downward pressure on condo prices. If people continue to buy based on their cashflow qualification, then rising HODs are going to push purchase prices down by their cahsflow equivalent. Right now I use a factor of $100/mo HOD = $20,000 purchase price; e.g. a $300,000 condo with a $400/mo HOD is roughly the cashflow equivalent of a $380,000 house. There are a lot of condos out there that are badly underfunded, and they are going to get squeezed. I expect that will make a continuing divergence between house price trends and condo price trends.

    • You are absolutely correct, Chuck. I was only talking single family homes, as condos are in for a long continued decline, I’m afraid. Not enough incentive for people to own them, and lots of risk. I don’t even do stats on condos, and haven’t for sometime. They are being hit from all sides as to regulation, and there seems to be a new problem every month or so!

      It will be a long time before condos stabilize.

  6. Thanks for the comment, Jerry. When things are gloomy, it is easy to project gloom. When the sun shines, it is easy to think things are getting better. And I agree, there are sign of life, like builders starting to buy spec lots again 🙂

  7. Chuck- Another positive sign of of things getting better is the number of ads and ad supplements in the Sunday Seattle Times- lots today. One of my early mentors who taught me this was Russ Young, the Times’ Advertising Manager. Together we started and ran the Settle Times/American Institute of Architects Home of the Month Program. J.

  8. Tell me, when Boeing disappears, where will these high paying jobs be to buy those peak priced homes? Again, I have never seen an area more delusional about their worth than here in WA.

  9. Thanks for the comment, prag. One of the pleasures of posting on RCG is the sften spirited debate.

    So my view is that Boeing finally became a company demonstrating the prudence and forethought befitting a manufacturing company of their scale. They shouldn’t have all of their facilities in one area and subject to disruption by either natural disaster or labor disruption. But they might be expected to put a lot of their work where they have the most facilities and the greatest skilled labor pool. So now we have a new generation 737 coming, a new generation 747 in flight test, 787 production ramping up, and likely the 767 (Everett-based) Air Force tanker contract.

    The notion of Boeing dissappearing or ramping down substantially in the Puuget Sound area sure doesn’t appear to be on any obvious near-term or mid-term time horizon.

  10. Chuck,

    Thanks for sharing the graphic!

    Not a lot to disagree with, however, I think the SOCAL predictions are a bit too gloomy. SOCAL has had a long history of wider price fluctuation, and a strong upward population pressure from the Mexico, as well as other parts of the world.

    If I could enter a bet in Vegas, I’d bet on SOCAL recovering no worse than 2020. Of course, I’d only want to bet nickels! 🙂

  11. The map of the country with the time frames for the various markets is sobering. Very sobering. I hope someone puts this in a drawer and pulls it out 2030 and compares it to the national landscape then. Wonder what they will find.

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