Banking on a housing market recovery - by 2020 that is

10 years, sounds reasonable, I guess. Certainly barring some change in the economy, we are not going to see massive appreciation for the next few years.

So the towns that haven't fallen yet in MA will fall 30-50 % (according to some on this site) and then rise back to 2005 levels, or back to 2009 levels by 2020? And is that inflation adjusted 2005, or just 2005 prices?

I'd be willing to bet that the ardent bears on this website would vote for more like 2030 or 2040...after all, just look at Japan! It has happened there once, so it must happen here now! :)

Sounds reasonable. All things being equal. Inflation could play a role though.

I'm not betting against it either, to be honest with you.

But is absolutely ridiculous to tell people to put their lives on hold (particularly young people starting families who need safe housing with good schools and not enough of it here) for 11 YEARS. That puts someone my age in their late 30s/early 40s easy. And a majority of people on the market right now are in that stage of life. Of course, today's prices aren't 2005 prices.

So its a value call. Uproot elsewhere, deal with possible rental issues, or buy. Figure out your circumstances, talk it over, and pick your poison. We decided we were going to pay about the same or slightly more in rent for a similar place. Although we're both transplants, we both love Boston.

Sometimes you have to do the best with the time and circumstances you're given. It ain't ideal or fair, but it is what it is.

2005 prices are gone for several decades!! Let's just admit it .

We will not see real (inflation adjusted) prices reach peak levels for at least another generation, and probably much longer. But in nominal (non-inflation adjusted) terms we will certainly be there much sooner. How much sooner depends on how fast the government prints money.

Hyperinflation, here we come...

Scott, for all the bantering about re: Taxachussettes, we still aren't as bad off as the folks in NJ and what they pay in taxes and fees; and though we don't have the easy commute into NYC for the financial sector jobs (that are fast disappearing), we do have a diverse job sector on a relatively small footprint. Our housing market is not NJ's housing market, just as our housing market is not CA's housing market.

according CS Home price index, Boston prices are at 2003 levels. Down about 18% from 2005 high...since 1987 a 3.59% annual increase over 22 yrs. Historically (using 1987-2000- i.e.-pre-boom) this is about .75% above average annually. If prices revert back to 2005 levels in 2020, that will be 2.8% annual average over 33 yrs which was back to the pre-boom rates. So 2020 equalling 2005 prices is not far fetched at all. That is 18% higher than today however, according to the indexes. 1.51% avg. annual increase over next 11 yrs. So if you are long-term (as you should buying homes) kind of good news really..The question is how do we get to 2020??? Huge plung further until end of 2010 and than a normal/higher growth rate from there??? Let the debating fly!!!

What about another angle that I haven't seen anyone mention that might contribute to lower prices and a slower recovery?

In addition to foreclosures, younger couples moving out of Mass., etc - the boomers are getting ready to retire. Doesn't it make sense that - for those that are inclined to do so - if they bought their home 20-30 years ago and are in a position to take advantage of the RE bargains in FLA and the south, they may be more apt to put their current home on the market for a lower price? And in the process add more inventory.

I don't know - maybe that demographic isn't large enough to make any kind of impact. But with FLA RE being the disaster that it is, it may cause some to consider retiring to the south when maybe they wouldn't have considered it before.

Just a thought.

Anybody who reads this blog have much knowledge of Jamaica Plain real estate? We've owned there for 3 years, refinanced last spring because our place gained value since we bought in 2006 (no remodeling or renovations). Just did a quick recent sales search for condos in JP, and they still seem to be selling at fairly high prices (similar to prices I've seen over the past 3 years). Is JP relatively resistant to this downturn as compared to the suburbs?

we'll only see a return to 2205 pricing if wages go up significantly, otherwise the market will never get there. Just like DOW 36,000, we'll never see it without a huge increase in corporate earnings. I think we'll continue to drop for another 2-3 years then flatline from there for quite some time. It is hard to imagine any new trend in the economy in the next several years which will provide a "boom effect" i.e. tech, real estate, etc.

But is absolutely ridiculous to tell people to put their lives on hold (particularly young people starting families who need safe housing with good schools and not enough of it here) for 11 YEARS.

?

Who is telling people to wait until prices climb to 2005 levels again before buying?

In 2005, friends bought a Tony Soprano house for $685k in New Jersey. They just sold it for $485k last week. Sale was prompted by a job loss and relocation. They were able to afford the $685 because their prior house appreciated from 2000 to 2005 $200k ($250k in 2000 sold for $450k in 2005).

They bought in Maryland, a house approx. the same square footage except the family room was in the basement and the finishes weren't all granite etc. They paid like $510k.

Here's the kicker, because mortgage rates are so low and TAXES are so much lower in Maryland than New Jersey, they will save approx. $600 per month on their mortgage payments, and their new community has much better schools... RE taxes in N.J. were $15,000. RE taxes in Maryland are $5,000. Ask someone from New Jersey what it costs to insure a BMW. Now, ask yourself, why does local government cost 3 times as much in one state as another? In Florida it is even less!.

This is why N.J. is in such dire straights; they have let their government and unions get way, way too greedy and over spend and get on an unsustainable course. New Jersey, like Massachusetts have had superstar performers in the private sector for years. This private sector has driven up the cost of living, so on the one hand public sector employees have had to get paid a premium for the higher cost of living, these levels now compound because of the guaranteed pensions that have resulted while the private sector has had their nest eggs cut in half in the past couple years. The public sector has been sheltered from this harsh reality.

In the end, government are servants of the Commonwealth, they are the caddies. When the caddies work for Tiger Woods, they make a lot of money. The question that no politican dares to ask is why is it so much cheaper to run government in one state than others?

Now do you feel as bad for them knowing that the $200k that got burnt off was the same $200k of price appreciation from the prior five years?

The people who got really hurt by this are those that bought responsibly between 2003 and 2007, and none of these stimulus programs help them, just the new buyers, those that were wreckless, or those that can refinance with the right loan to value. People that bought in the last five years are having difficulty refinancing because of LTV (loan to value).

I bought my first home in 1991, at the bottom of the last major drop in the housing market. The value of my home was relatively stagnant for 9 or 10 years, before the big boom. So I also am not betting against home prices remaining at current levels for another 10 years.

However, my advice to those looking to buy their first home is to go ahead, if they are buying for the right reason: to have a roof over their heads, where they can count on a steady mortgage payment and live for a length of time. Even though my home did not increase in value, I was still glad to own my home. I was not planning on going anywhere.

Honestly, if you want a good example of why the housing market is going to take forever to bottom out take a look at the recent addition to the MLS listings....MLS 70906775. Who is going to buy this basement/1st level 2 BR in Southies West Side for 400k? The place is assessed for 326k. I'm not big on assessed values, but its a starting point. Are these sellers out of their minds????

Ten years for past downturn to correct itself is about right. We bought our present home in 1990, before selling the condo we owned. As a result, we became landlords by circumstance. We were not able to sell the condo until 1998 when we sold for an amount numerically equal to what we had paid originally, although not at the value it had appreciated to by 1990.

Fortunately for us the present value of our home is substantially greater than what we paid originally. Unfortunately for us we hoped to retire and cash in on the equity before 2020!

First off, we are talking nominal prices/gains here. Since just about everyone views a home as an investment ( I don't) we should always talk real gains. Of course, everyone talks in terms of nominal prices. That said......

This isn't doom and gloom at all. We probably will not hit the bottom in many parts of the country for another 3 years. Then we'll return to historical appreciation rates (~3%). If prices are down, say 30% peak to trough (which many parts of the country already are), it will take roughly 17 years to gain back the 30% decline.

The wild card of course is the massive money printing efforts that are being undertaken by central bankers around the world. I could foresee massive price inflation which might cause home prices to start rising at a clip where we could see 2005 prices in 7 or 8 years. Of course, these would be nominal gains and would be meaningless since the cost of everything would be going up.

Looks like the next wave in the mortgage crisis has come ashore:

"April 21 (Bloomberg) -- Fannie Mae and Freddie Mac mortgage delinquencies among the most creditworthy homeowners rose 50 percent in a month as borrowers said drops in income or too much debt caused them to fall behind, according to data from federal regulators.

The number of so-called prime borrowers at least 60 days behind on mortgages owned or guaranteed by the companies rose to 743,686 in January, from 497,131 in December, and is almost double the total for October, the Federal Housing Finance Agency said in a report to Congress today."

Of all borrowers who ended up in default, 34 percent told Fannie and Freddie they were earning less money, about 20 percent cited excessive debt as a reason for missing mortgage payments, and 8.1 percent blamed unemployment, FHFA said.

people are buying . I have watched about 20 homes in easton switch from for sale to sold in the last month

#17- These types of statistics make me wonder if there is a segment of our population that has discovered that in order to get a mortgage modification it helps if you are behind on your mortgage payments. Despite incentives, there are still some lenders that will not get serious about modifying a loan until the homeowner is behind in their payments.
I am all for helping homeowners that have become unemployed or are having financial problems after or during major illness, but not for "excessive debt".
Get a loan modification because you racked up high credit card bills? Give me a break! I'd love to know how many of these folks stricken with "excessive debt" are also subprime borrowers or others that got themselves into mortgages they could afford, which is another form of "excessive debt".
Will someone please show me a credible source that indicate that home values will fall by as much as 50%. I've yet to see one.

11 years sounds fairly reasonable, if not aggressive to me. I've been amazed by the number of houses on the market who have owners who bought in the late 90's and are now asking prices at 2x what they paid. Historically, housing has appreciated at ~3% a year. Even if you assume a 5% gain a year which in every real estate market outside of the last decade is aggressive, it still takes 16 years to double. Here in Boston, the nicer burbs and the city itself still has a solid 20% to fall before we get back to anything resembling fair value. Low interest rates will subsidize the rate of fall and inflation may catch a bit as well - unless we see the deflation currently being witnessed in Spain. Assuming wages actually grow over the next decade (they haven't since peaking in 2001) Americans just might get back to being able to afford their own houses.

#9- JP owner/BH - I work in JP all the time. In fact, I was there today. JP has held up very well and there is generally a shortage of really good property for sale there. Condo values are off a bit from last year, but appear to have stabilized. Homes are fairly stable. Values anywhere are a response to supply and demand, so it really depends on where you are in JP. The closer to the center, the stronger the values.

Just ran a report for you. Combined condo and single family inventory is 177 properties vs. 186 a year ago. Average asking price is up 13,056 and median asking price is down 3,450 over this day last year, meaning a lot of higher end owners are holding their homes off the market, typical of many market at this stage of a real estate cycle. (Also explains why pundits declare that home values are declining. That's what happens when the higher end is not as active as the lower end.) Marketing time is about the same at around 107 days to an accepted offer. 361 properties sold in the last year, which means that we pretty much have a 6 month supply of inventory and a fairly "balanced market". It also explains why good property that is properly priced will bring multiple offers in that market. There are currently 68 properties "under contract" (meaning with accepted offers) in JP. Hope that gives you the info that you were seeking.

I'm an ardent bear. I think prices back by 2020 sounds reasonable, certainly wouldn't bet against it.

I also live mainly in a rental apartment. Somehow my life isn't even slightly on hold. Why is owning a house falling in value necessary to not have a life on hold? What an absurd statement.

As Marcus points out above, one doesn't need to wait 11 years to buy if one is interested - I'd be surprised if we don't see bottom within the next 3 years. And wouldn't be shocked to see bottom post spring market of 2010.

Of course, I do think that will involve noticeably lower prices then now - therein lies the bearishness

BH #9, JP has definitely held pretty steady, as have several neighborhoods in Boston proper, with the exceptions of Roxbury & Dorchester. However, turnover is relatively high in JP, and the market is starting to finally feel it this year. According to banker & tradesman, sales are down 50% in JP this year compared to last year, and the average selling price is down 25% from last year. This is actually one of the larger decreases in those neighborhoods which were holding their own. In all, I'd say you are relatively safe as JP is a great community. If they could develop some better schools, with the massive boost in tax revenue they have seen over the last 10 years, you would be looking even better, but till then, parents will have a difficult time choosing a place at those prices, while they have to pay for private school as well.

2020 is reasonable - it took about 10 years for prices to rise appreciably here in the DC area after the ~1990 run-up as well. Better to think of a home as an expense (like a BMW) rather than as an investment for now.

Yeah, JP is steady..

"The median sales price for homes in ZIP code 02130 in Jamaica Plain from Jan 09 to Mar 09 was $302,500 based on 36 sales. Compared to the same period one year ago, the median sales price decreased 27.6%, or $115,500,. Average price per square foot for homes in 02130 was $197, a decrease of 22.1% compared to the same period last year"

I could have bought a property years ago. However, I refuse to buy ANYTHING in this state! I won't even buy a new car due to taxes and insurance costs. I wasn't about to move to NH or Maine, either. I like to be close to where I work and not have to deal with traffic jams. So, I rented and saved enough to retire comfortably. I'm leaving this state as soon as I retire. No more state income taxes! I may buy something in Florida on the cheap in a retirement community. Perhaps I'll buy an RV and spend summers in NH. Whatever the case, I won't be living in Taxachusetts!

I don't believe I'm the only one who feels this way. Despite becoming a sanctuary for illegal aliens, this state is losing people - people who have paid more than their fair share of taxes and are disgusted with it all. It's only going to get worse. Look at Detroit. That's where Boston is headed.

Hard Rain:

Warren group has different data than you present. Maybe just different ways of looking at the same transactions, perhaps? Data looks pretty flat with exception of spike in 2006 SFH. Small sample of SFH, though. Mostly condos there.

Year Months SFH Condo All
2009 Jan - Mar 470,000 321,000 346,950
2008 Jan - Mar 498,000 346,500 379,500
2007 Jan - Mar 392,500 337,000 349,750
2006 Jan - Mar 710,000 322,750 350,000
2005 Jan - Mar 428,900 322,500 362,750

I'm willing to bet that most of the people who agree with the 2020 estimate are all renters. They will say anything to justify to themselves that they don't need to own a home. As a landlord I appreciate dummies like you. Just keep those checks coming every month!!!

I'm willing to bet that most of the people who don't agree with the 2020 estimate have most of their net worth tied up in a highly leveraged bet on real estate appreciation. They'll say anything to justify to themselves that the interest and taxes they're paying on their declining value homes are worth it. "I can paint the walls any color I want! Yay!" As a renter, I appreciate dummies like you, paying taxes for all the services I use, paying the landscaper, fixing the sub-zero fridge when it breaks. Keep up the good work genius! :-)

I decided not to buy and ended up renting a carriage house in Brooklyn, NY. It was the best decision we ever made. Had we bought a house, we would have sunk every penny into it, then gone into debt fixing it up, then probably would have ended up selling in 5 years b/c anything we could have bought would have been small.

A home is a home. Not an investment.