Monday, September 03, 2012
Some Housing Perspective
If a person took out their mortgage loan between 2004 and 2008, when prices came from fantasy land or if a person took out equity loans or lines of credit during that time period based on the fantasy values it would certainly be likely that they would be "underwater" today. Generally speaking, home prices doubled or even tripled between 1999 and 2006 in many high volumes areas and of course this was pure insanity!
Historically, home prices (values) since the early 1950's (with the exception of the fantasy years mentioned above) have risen about 4% on average. There was no fundamental logic to justify the national insanity displayed in the past decade. The fact is that EVERYONE drank the kool aid, meaning the consumers, the banks, the government lending and taxing agencies at all levels, the home building industry and on and on with little thought that it couldn't last or that something was fundamentally wrong.
My Mother's house in Los Angeles, Ca. was valued at about $80,000 in 1975 and had risen to about $190,000 by 1999, reflective of the 4% guideline. When the "value" jumped to $240,000 by 2001 and then to the insane level of $900,000 by 2006 (the high point) all rational analysis was out the window. Even today, her house is "valued" at about $635,000 which is still too high (it should be about $370,000 at most). Do the math for your house or area pre insanity years compared to now and you may get a better indication of actual value. My Las Vegas home went from a 1998 purchase price of $146,000 (in 1998) to a sale price of $172,000 (in 2002) and then DOUBLED to $340,000 by 2006! Oh come on! The current "value" estimates average about $144,000 which is more realistic (although my city has been hit much harder than most).
For those caught in the trap of the insanity years things have been difficult to be sure. For those who borrowed above there means gambling that the rocket would just keep going up well it should be a sobering lesson. The main point now is for all of us to avoid letting ourselves get sucked into a repeat performance. The pain of these past few years and of the next 4 to 5 years coming up is the collective price that must be paid but perhaps we can return to a more reasonable approach to home ownership and our overall expectations. Housing prices have begun to stabilize in recent months and even increase in many markets as the available inventory lessons, but before anyone can make realistic decisions about buying or selling, the Banks and lenders and government entities need to process virtually all of the distressed mortgages and clear the books so the whole housing market projections are more clear than they are now. Hopefully, homeowners that are "underwater" by 10 to 25% will see their home values increase to at least get them to the break even point within the next 3 to 5 years. If these homeowners bought with the intention of living and raising a family in the home and they are fortunate enough to have the funds to meet the payment obligations, being underwater now should not be a crisis. An important question still is; "Will the players in the housing game try to do it all again?"
As a final and what should be an optimistic note for the housing market, the current 30 year fixed mortgage interest rates at their LOWEST level since October of 1955 when the rate was 3.5%!! That was 57 years ago!!