Here’s another real estate forecast from prominent financial advisor:
Housing prices will stop sinking next spring. But recovery will be a gradual process — too slow to help the economy much next year. Look for prices, which have fallen an average of 31% since 2006, to drop an additional 2% or so in the early months of 2012 and then recover that lost ground by the end of the year.
The growth in 2013 won’t be dramatic Come 2013, expect home prices to rise only 3% to 4% — not too far from the pre-boom average of 4.8% a year, but well short of the bounce that usually follows a housing slump. After the milder housing downturn in the early 1980s, home prices grew an average of 6.5% for six years.
A key signal that the bottom is near: A change in the ratio of average homes prices to personal income — houses are affordable again. After soaring to 4-to-1 during the housing boom, the ratio is now well below the long-term average of 3-to-1.
Another reason for optimism: Foreclosure numbers are set to level off after a recent surge to clear up the backlog that developed when banks were found to be rushing though the paperwork for seizing homes. Although the 3.5 million foreclosures still in the pipeline are weighing heavily on the housing market, that effect will diminish when it is clear that the worst has passed.
Look for home sales to tick up next year as well, hitting 5.5 million for new and existing homes. That’s up 4% from 2011, the low point since the housing bubble burst.
Demand from abroad will help. Canadians are buying homes in Phoenix; Brazilians are investing in Miami; and Chinese are buying in California, Las Vegas and New York City. To these investors with bulging pockets, good values can be found where the price declines have been greatest.
U.S. investors remain more conservative, largely avoiding single-family homes and diving into the multifamily rental market. It has heated up in recent years, thanks in part to the crowds of former homeowners who need a place to live, as well as to would-be home buyers who are waiting to see if prices have further to fall.
Home starts will jump 15% next year, driven largely by construction of new apartment buildings. Among the strongest areas are Texas, Louisiana, Oklahoma and the Dakotas, where the robust energy industry is lifting local economies and earlier overbuilding was avoided. Other states that have benefited from past restraint are Montana, Washington, Iowa and Nebraska.
Even so, new construction will be only around 750,000 in 2012, down from 2 million in 2005 and far below the pre-crash average of 1.5 million from 1959 through 2006.
Farther down the road, there is plenty of pent-up demand. The lousy housing market has muffled the typical rate of household formation, deterring many young folks from getting their own homes. As a result, there are 2 million new households waiting for an improvement in economic conditions: recent graduates eager to leave their parents’ nests and 30-something couples who have delayed marriage or having children. As the economy picks up steam, they will emerge, helping to soak up the glut of foreclosed homes and putting construction on a faster track.
By 2014, the housing market will start to look more like its old self, with housing starts near the long-term average of 1.5 million a year, sales of about 6 million and price gains of over 4% a year.
Shorter term, even the modest reversal likely in 2012-2013 is crucial, easing the crushing weight the housing market has imposed on the economy. Homeowners, who lost a large share of their net worth in the housing crash, have been trying to rebuild their wealth by saving more in recent years. Since the market crash, consumers have held on to more than 5% of income, up from less than 2% during the housing boom. Since consumer spending accounts for two-thirds of economic activity, this uptick in saving and correlating downtick in spending has spelled the difference between a solid recovery and the shaky one the U.S. is experiencing.
Since a good deal of this saving is due to uncertainty — not knowing just how much more home prices will drop — reaching a clear turning point is important. Once homeowners know the worst is over, they’ll take a breath, start planning their saving for the long term and spend more in the short term.
Of course, the market shift won’t make much immediate difference for the millions of homeowners who owe more than their homes are worth. But for the majority with equity in their homes, even a modest gain in prices can change their spending behavior.
Read more: http://www.kiplinger.com/columns/practical-economics/archives/finally-a-bottom-for-home-prices.html?si=1#ixzz1fGAaeIcu
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In other words, blah blah blah and blah. Oh, and send me 20K for my VERY informative newsletter.
Hasn’t that been the forecast for every year since the recession, i.e., we’ll hit bottom “next year” and rise from there? Prominent people keep expecting a return to normal, somehow ignoring we’re still short 40 million jobs.
Is it opposite day today?
Those 40 million jobs are gone and not coming back. People need to adapt, or die.
While that sounds harsh, it’ll probably needs to be to get people’s attention after all the coddling.
Hopefully they’ll let Magic buy the Dodgers and be the trigger point of the turnaround.
I have said since 2005 that the bottom in nominal prices would be the winter of 2012, but it will be irrelevant from an investment standpoint. Prices will rise in nominal terms, but prices on necessities such as food, energy, and necessary shelter, (rent), will rise much faster, and re prices in real terms, adjusted for a devaluing dollar, will keep falling for close to a decade.
And its not a guess. It is a forecast.
Jim, some of us will survive.
At
http://campaign2012.washingtonexaminer.com/blogs/beltway-confidential/obama-my-kids-will-succeed-even-if-usa-doesnt/230351#.TteqerZuAK8.twitter
Obama tells us that even if the USA is a burned out smoking dead carcass of a country and his children must live behind high walls and gates, they will be OK. It would be better if the country was safe enough for the kids to be able to walk amongst the commoners but that is entirely up to the Republicans.
“Predicting is very difficult, especially about the future.”
I agree with Jim – those jobs are not coming back. It gets worse – any job that can be sent offshore for lower cost will also go, and never come back.
We are only partially through this long-term change, and its results on our incomes and living standards as well as asset prices (including real estate) are not well understood. Most economists compare this recession to the many post WWII recessions and predict a full rebound. This time it’s different!
“Those 40 million jobs are gone and not coming back. People need to adapt, or die.
While that sounds harsh, it’ll probably needs to be to get people’s attention after all the coddling.”
As long as you’re not running for President, it’s quite ok to say.