This 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.