Housing markets in the United States are at an inflection point. As the economy recovers, markets will stabilize but the old “normal” will not return. According to John K. Mcilwain the author of “Housing in America: The Next Decade”, two predictions the researcher discussed were: suburban homes will appreciate in value very slowly (perhaps 1-2 percent annually) and the homeownership rate will continue to fall (likely settling somewhere between 62 and 64%, currently at 67% down from 69% at the height of the boom). Although home prices are stabilizing in many parts of the country, national housing prices will fall another 10 percent this year “until they stabilize in the second half of the year or in early 2011” according to this author. The biggest challenge for the housing market currently is the growing number of homes with mortgages that are “underwater” (owing more on the mortgage than the home is worth). By the end of this year an estimated 40% of all homes with mortgages are predicted to be underwater. In the Seattle Metro area there are estimated to be about 22% according to Zillow. Thus, the biggest obstacle to stabilizing home prices is the threat of a new wave of foreclosures. More foreclosures in an area do lead to a smaller gap between foreclosure and non-foreclosure prices. In the Seattle area, foreclosed homes currently sell for 81% of non-foreclosure sales price.
I was privileged to be invited to a conference at our Top 1% meeting recently where the speaker was the chief economist from Zillow, Dr. Stan Humphries. According to their research, home values will continue to fall this year; another 5% nationally for an average peak-to-trough of 25% and locally he estimated another 3-5%. Currently on average for the Seattle Metro area we are off 21% from the high of mid 2007. The same reasons were sited, the number of homes under water and the unemployment rate
However, it is a great time to be a buyer especially if you plan on being in the home for 7-10 years. If you are buying and selling in the same market you are not loosing anything. Timing the bottom is almost impossible and only realized once it has passed, the current environment is very attractive given the historically low interest rates (even if they go up a point, they’re still historically low) and much improved housing affordability; trading up now and riding it up for the long term might make perfect sense.
