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A Housing Market Recovery in the Distant Future?

This article was written by in Real Estate and Home. 21 comments.

Several times over the past few years, I’ve asked myself whether I should take advantage of the lower prices for real estate, put my renting history to rest, and buy a house. I’ve brought up the topic several times on Consumerism Commentary, as well. Every time the news media comes out with another wave of reports of the real estate market dropping to historic lows, I think the bargains are here.

I haven’t purchased a house yet because I haven’t decided where I want to settle down. I’m not thrilled about locking myself into a long-term financial commitment until I’m pretty sure where I’d like to spend the next few decades of my life. As almost anyone who has tried to sell their home during the past few years during the real estate market’s fall, moving once you own a home is not an easy process.

Based on the Case-Shiller price index, real estate has now falling further from its peak than it did during the Great Depression. In that instance, real estate prices took 19 years to reach their previous highs. If today’s market echoes last century’s reality, housing prices won’t recover until 2025. Low prices are great for buying — but will they go lower, and if they do, will you need to sell while your house is worth less than the purchase price? These are points that I would need to consider before buying a house. They’re not the most important points, but bad timing could have a negative effect on a family’s personal finances. While you can’t predict the future and time the market, being aware of these issues can help prevent devastating loss.

Fortune Magazine

Published or updated May 31, 2011. If you enjoyed this article, subscribe to the RSS feed or receive daily emails. Follow @ConsumerismComm on Twitter and visit our Facebook page for more updates.

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About the author

Luke Landes is the founder of Consumerism Commentary. He has been blogging and writing for the internet since 1995 and has been building online communities since 1991. Find out more about Luke Landes and follow him on Twitter. View all articles by .

{ 21 comments… read them below or add one }

avatar wylerassociate ♦162 (Cent)

flexo, i’m in the same position as you are since I’m currently a renter and looking to buy a house. Here in Phoenix, this is the lowest point for the housing market as homes are at their lowest price. Selfishly I hope that homes are still cheap until I’m ready to buy a nice home.

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avatar Jon - Free Money Wisdom

If you are able renting is the way to go in this fluctuating economy. However, I am right there with you. Once I settle down and decide to purchase I only hope that the housing market is swinging in the consumer’s favor! It is definitely a decision one has to weigh carefully.

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avatar john

one point to remember, even if you sell it for less than you bought it for, at least you get some of your $ back throughout the years. Rent where I’m at is as much as a Mortgage. I bought in March 2009, after the big drops, but I would be ok with a stagnant market as I would have received the 8k FTH bonus, and seller paid closing cost, and I would receive quite a bit back of my “rent”

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avatar SteveDH

If you are considering buying, look hard at your time horizon. Don’t let changes in home values, which are being watched with a short-term eye, discourage you. We bought our home in 1985 and it climbed in value until 2006/2007. Now having dropped dramatically its value is still twice what we paid for it. Two rules: Buy only if you intend to “stay awhile” and NEVER borrow against equity (unrealized gains). The new reality is that unrealized gains in a house should be seen as having the same 35%-40% volatility as other investments.

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avatar Steve Dupree

House prices going down is just as much of a “paper” loss as when they go up. My wife and I are half-heartedly looking for a house right now. We talked about it and decided that what matters is not if the housing market might go down, but what would happen to us if it did. That is, if we buy conservatively, put 20% or more down, and have enough savings, we won’t end up locked into a house we can’t afford to keep and can’t sell because we owe too much. Emotionally losing money on a house would stink, but at least if we are careful we won’t end up totally hosed by such a situation. It’s the difference between not coming out as far ahead as you thought you would, vs. being hosed. Looking at our friends and aqcuaintances who bought at various times and levels of affordability (in their individual situations), the latter is far, far worse than the former.

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avatar tbork84 ♦1,867 (Half-Dollar)

The key is the 20% down. People are over-leveraging themselves to own homes, and then like any investment, the pain when it declines in value is amplified. I am a firm believer of the 20% down payment as a buffer for declining home value.

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avatar cashflowmantra

Personally, I think that house prices have farther to fall since there is so much potential inventory available. That being said, if you plan on staying in a particular location for many years, it shouldn’t matter if you don’t pick the absolute bottom.

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avatar Krantcents

I don’t know if anybody can accurately predict the bottom! What do you do? Get as close as you can and hang on for at least 5-10 years. Find the best house you can afford in the best neighborhood at the best price. You may have to buy a fixer or a foreclosure. I don’t like foreclosures because it takes months.

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avatar Steve Dupree

Foreclosures aren’t too bad. It’s the short sales that take months. And even then, you have far less than 50/50 odds of successful closing.

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avatar qixx ♦440 (Nickel)

There seem to be as many foreclosures in my area as home with for sale signs up. I know someone that bought a move-in ready foreclosure with just under 6 weeks wait. The wait really depends on the bank.

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avatar KyleAAA

Well, it’s not that bad. The Great Depression was deflationary, so even though the CS index didn’t regain its nominal value for almost 2 decades, it did so in real terms much sooner. This time there was no major deflationary pressure. If we’re comparing apples to apples, I think we’ll see a recovery much sooner than 2025 in MOST markets. The hyper-hot markets might take that long to recover, but the average market probably won’t.

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avatar rewards ♦31 (Newbie)

But was there a housing bubble before the Great Depression? If not, it could be further reason to believe that this recovery will take even longer to return to “their previous highs”.

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avatar Steve Dupree

That’s what I’ve been thinking. What does it mean for the market to “recover” when the high-water mark was due to a bubble?

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avatar nimrodel ♦42 (Newbie)

I’m not at a point in my life where I’d be buying anyway, but I’m not sure if I’m ever going to be buying a home. When you combine the costs of a mortgage, property taxes, upkeep, etc….at least where I live now, it’s just not competitive.

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avatar Hunter

Again, today, the news is filled with reports of home prices hitting a new 8 yr low. I’m encouraged by the swift clearing of foreclosures. But, property developers need to learn how to do something else for a few years, before flooding the market with unsaleable homes.

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avatar Kathryn C

Who really knows how much more prices will fall and when interest rates will increase. Last fall after the bond buy back, mortgage rates actually increased, which wasn’t supposed to happen. I bought my place in Oct 2007 (Yay for me! NOT) …..but if I didn’t own now, and I had an idea on where I wanted to settle down, and had the money to do it, I’d buy right now. Everyone is trying to time the bottom and there are a lot of buyers sitting on the side lines right now, you’ll be in a better situation with the lender (in terms of negotiating your costs) when their phones aren’t ringing off the hook… they want your business.
Obviously you run the risk of your home going down in value if you don’t time it exactly right, but as cashflowmantra says, if you’re staying for a while, it shouldn’t matter. I just get freaked out when everyone is jumping on the “I think prices are going to go down more” bandwagon. Sure, there are millions of foreclosures in the pipeline, but certain areas that have stabilized so it really depends on where you’re looking to buy if we’re going to grip on to that theory.

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avatar Yana

Having seen on Marketwatch today that there is no end in sight to falling prices, I’m glad we have made no moves. I think prices are still too high, and we may simply get a different rental – either permanently or until it is clear that there is a fine value to be had. There are real advantages to renting, so many that I am not sure that the advantages of home ownership can compare. I think I read a comment here in the past that the time to buy is when prices begin to rise from the bottom – because that’s the way to know where that bottom was.

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avatar Mike

Glad to see house prices going lower. I’m no where near ready to financially be able to afford a house. Hopefully it continues to tank until I am.

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avatar shellye ♦107 (Cent)

As a side note, I was really surprised at the poor quality of the homes out there for sale. My husband and I are buying a bigger house out of necessity (getting married, blending family), and looked at close to 30 homes before we could find one that we both liked AND was in decent move-in condition. People put their homes on the market these days, (with a realtor’s help, mind you) in the nastiest condition possible. Sellers seem to have forgotten that when a buyer looks at their home, and sees leaves degrading in murky pool water, cobwebs in every room, doorknobs falling off, and weeds growing in the front yard, about the last thing we want to do is give them any of our hard-earned money. Unbelievable.
It’s still about location, location, location. I’m glad I made a few bucks off the sale of my current home, ‘cuz my husband and I both decided – we’re NOT moving again. LOL

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avatar Website Guru

“With prices so low, it would seem to be an ideal time for Americans to start buying real estate again.” I’ve seen similar statements again and again in news stories throughout the housing bust, often paired with experts predicting how far off the recovery is. One reason I’m on the sidelines is that such experts have been wrong so many times already.

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avatar Thedogeofsl ♦139 (Cent)

As a veteran home owner, I’d say the first thing to bear in mind is that a home is not an investment instrument – at least not in the conventional sense. The return on your investment in a home is the pleasure you get from living in it and the security of knowing, if you had the good sense to avoid an ARM, that you have some control over your monthly cost. People who bought homes with the intent of selling them quickly to cash in on a rising market were always taking a big risk and some of them got burned.

Right now our house is still worth more, even in the current depressed market, than we owe on it, but even if that weren’t the case it wouldn’t matter since we love our home and our neighborhood. As long as we can manage the stairs, we’re not going anywhere.

I expect that the market will rebound at some point, but it probably will take a while. Meanwhile, it’s a great time to buy if you think you won’t want to move for a few years; interest rates are still low and prices are, to say the least, cheap.

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