Blog
January 22nd, 2010

Climbing the “House-Value Mountain”…Think Everest

by

 

When will you regain the value your home “lost” during the housing crisis?

There has been an interesting back-and-forth exchange between a concept first proposed by real-estate vet Lew Sichelman, and analytics from HSH.com that has expanded upon Lew’s concept.

Back in November, Sichelman wrote an article for the trade publication National Mortgage News citing a fresh study which explored the likelihood that an underwater borrower would walk away from their home, even if they could afford to make payments.

Sichelman’s concept made us ask ourselves “What about those homeowners who stay, what happens to them?”

Given that a sizable chunk of the population is perhaps 10% to 20% underwater, we thought we’d run a few quick calculations to see what the 95% of borrowers who DON’T walk away might face in their financial futures. We presented our speculations in an article titled “Home Equity: Why 2015 is the New Zero,” where we looked at borrowers who bought near or at the peak of home prices, and wondered when they would recover lost value.

After reading ‘2015,’ Sichelman had a new but related idea, and asked us to run some more calculations so he could write a new article that would give homeowners an idea of when their home’s value would return to what it was worth before the crash. He looked at borrowers who bought well before the boom in home values, watched the price of their home skyrocket, then fall back to earth, and wondered when will they get back to the sky again.

Note: The analytics — as far as the future projections of home price appreciations — that HSH.com provided for Sichelman’s article could only be based on educated guesses.

Here’s what we both found (emphasis added):

According to the Standard & Poor’s Case-Shiller Home Price Index, the popular measurement that tracks changes in the value of residential real estate in 20 metropolitan regions, prices have fallen 32.6 percent, peak to trough, between 2006 and the third quarter of 2009.

Going forward is pretty much a toss-up, but HSH is proscribing a flat real-estate market with no increase in value through June 2010. Then, from July 2010 through August 2011, a period of 14 months, prices are projected to increase at a rate of about 2.5 percent a year. And from then on out, the company is figuring on a yearly gain of 3 percent.

With these percentages in mind, let’s look at what happens to the value of a $200,000 house purchased at the top of the market in July 2006.

By the time the market hits bottom — at least the bottom, according to Case-Shiller — that property was worth a paltry $134,800, a decline of 32.6 percent. Using HSH’s assumptions, the value of our imaginary house won’t get back to the $200,000 the fictitious buyer originally forked over for it until — are you ready for this? — July 2022.

That’s right: You read it here first. It will be a 12-1/2 more years until this house is once again worth what was originally paid for it.

Sichelman’s goes on to explore a second example. What will happen to the value of a $200,000 house purchased in January of 2000 (examining its price from “peak to trough, between 2006 and the third quarter of 2009″)?

Based on the Case-Shiller index, this property reached its top value in July 2006, when it was worth $413,040. If the buyer sold at that exact time, he would have netted a tidy little gain of 106 percent and change.

But say he didn’t sell. Not only did he love the place; he also didn’t know what the future held, so he stayed there, blithely unmindful of what was about to happen to the value of his castle.

That’s too bad, because by April 2009 — the bottom, according to Case-Shiller — the place was worth “only” $278,500.

The buyer was never underwater. He still was ahead $78,500, less, of course, his buying and improvement costs. But he still had “lost” — there are those quote marks again — a whopping $134,540.

And that brings us to the question many people are asking: When is my house going to be worth what it was before the bottom dropped out?

Using the HSH’s projections — drumroll, please — this $200,000 house purchased at the turn of the century won’t be worth $413,000 again until December 2021.

It’s clear, whether you’re hoping to recover your purchase price — or recover your home’s maximum price — that it’s going to be a long while before that happens.

How do you feel about “paper losses” related to the value of your home?

Share and Enjoy:
  • email
  • Print
  • RSS
  • Add to favorites
  • Yahoo! Bookmarks
  • Facebook
  • Twitter
  • Technorati
  • Digg
  • del.icio.us
  • Google Bookmarks
  • StumbleUpon
  • Yahoo! Buzz
  • Mixx
  • BlinkList
  • Live
  • Reddit

Leave a Comment

Receive Updates via Email

Delivered by FeedBurner

About the HSH Blog

HSH.com's daily blog focuses on the latest developments in the mortgage and housing markets. Our mission is to relate how changes in mortgage rates and housing policy, as well as the latest financial news, impacts consumers, homebuyers and industry insiders alike. Our 30-plus years of experience in the mortgage industry gives us an edge as we break down the latest changes in an ever-changing market.

Our bloggers:

Tim Manni

Tim Manni is the Managing Editor of HSH.com and the author of their daily blog, which concentrates on the latest developments in the mortgage and housing markets.

Connect With Us

  • rss feed icon
  • facebook icon
  • twitter icon

Compare Lowest Mortgage Rates

$