Home values could take decades to recover


If you bought near the top of the housing bubble between 2005 and 2006, you could wait decades for the prices to reach that level again, according to a report in USA Today. People who must move for a new job or family crisis find they either have to come up with cash for closing (if they find a willing buyer) or they must walk away from the loan and give the house back to the bank either through foreclosure or through a deed-in-lieu of foreclosure.

The housing bubble that started to inflate in 2002 and burst in 2007 drove housing prices way out of the normal range. The normal ranges for housing prices track these measures:

* Income - The house price should not exceed three times your average household income, which was true from 1950 to 2000. In 2006 the average household income was $66,600, so the average home price should have been about $200,000. But during that year the average home price was about $300,000.

* Rent - Traditionally homes sold for about 20 times what it would cost to rent the home. In 2006 that number jumped to 32 times. Until prices fall back to the 20 times number we won't see stabilization of home prices.

* Appreciation - Between 1950 and 2000, the normal increase in home value was less than 0,5% per year after adjusting for inflation. From 2000 to 2006, home prices rose at an average annualized rate of 8.2% above inflation and peaked at a 12.3% jump in 2005. Housing prices began to fall in 2006.