Real Estate Prices Down 35% Since Peak… But It’s Not Over

Remember when leading real estate analysts forecasted a housing recovery and return to housing market growth? Or when the government promised that the $8000 home tax credit would stop the decline? Or when monetary experts recommended printing more dollars in the form of stimulus to stabilize prices?

All of it was for naught:

The besieged housing market has even further to fall before home prices really hit rock bottom.

According to Fiserv (FISV – News), a financial analytics company, home values are expected to fall another 3.6% by next June, pushing them to a new low of 35% below the peak reached in early 2006 and marking a triple dip in prices.

Several factors will be working against the housing market in the upcoming months, including an increase in foreclosure activity and sustained high unemployment, explained David Stiff, Fiserv’s chief economist.

Should home values meet Fiserv’s expectations, it would make it the third (and lowest) trough for home prices since the housing bubble burst.

Source: CNN Money

Foreclosures and unemployment are the elephants in the room when it comes to housing. If there are not enough jobs being created to offset those being laid off and new people entering the workforce, then people find it increasingly difficult to make their monthly mortgage payments. Couple that with an already saturated foreclosure market with a shadow inventory of millions of homes sitting unoccupied and you have the makings of a serious housing decline.

But the experts continue to predict a return to housing prosperity starting next summer:

Even after the housing market begins its comeback in mid-2012, the recovery is predicted to be modest at best. Nationwide, Fiserv is projecting that home prices will climb just 2.4% between June 2012 and June 2013.

Just like they did in 2008, 2009, and 2010:

Housing Markets Will Roar Back in 2009
The nation’s foreclosure hemorrhage has finally slowed and 2009 should see a significant decline in foreclosures as buyers return, pushing home prices up and fueling a real estate recovery. (link)

U.S. Housing Recovery Delayed to 2010
“My prediction is we’ll probably recover on a seasonal basis. It’s generally accepted that the homebuilding industry is off the mat and on the road to recovery.” (link)

Home prices should bottom out in 2011
Most experts expect home prices to bottom out in 2011. That should be welcome news for home buyers looking to take advantage of the lowest possible prices and sellers who have endured three years of steep declines in property values. (link)

For an example of how severe these types of cyclical downturns can be, consider the massive declines experienced in real estate prices in the United States during the Great Depression:

During the 1920s prices reached their highest level in the third quarter of 1929 before falling by 67 percent at the end of 1932 and hovering around that value for most of the Great Depression.

Source: Social Science Research Network

As we’ve opined from the beginning of the housing crisis, we need look only at Japan for a modern day example to see how far we can fall and how long this can take:

It’s hard to imagine the average price of a home losing 40% – 60% of its value during the course of this real estate bust. For those who say its impossible, we point you to the Japanese real estate decline of the 1990′s, which saw Japan’s property values lose more than 70% from top to bottom, and the Japanese have yet to recover.

Developers, both residential and commercial, can build all they want, but if nobody is buying or renting, then it really doesn’t mean much. In the coming years, we expect to see hundreds of residential developments sitting without residents and continued commercial vacancies.

Real estate is not bouncing back any time soon – perhaps for a decade or more.

Don’t fall into the trap of expecting recovery because expert analysts and Realtors say prices are stabilizing or headed back up.

We remain in the middle of the worst economic and financial crisis in the history of our nation. While there may be isolated pockets of sporadic growth on a month-over-month basis, the long-term trend is one of sustained decline. A 50% to 75% price collapse from peak to trough is not out of the question – though it may be outside the realm of possibility for many.

Author: Mac Slavo