Have Home Prices Hit Bottom?

How long until home prices hit bottom and stabilize? By at least one measure, it happened last year.

Researchers at the Citizens Housing Planning Council (CHPC) have charted single-family home prices in the New York City area, Las Vegas, Los Angeles and the Case Shiller Index of the 10 major metropolitan areas. They also included a trend line that shows how the index for the 10 major metro areas would have changed if home prices had appreciated by an average rate of 5 percent since 1993.

By that measure, home prices are, in many cases, well below where they should be.

"Over the past half-century, the average annual appreciation rate for a single-family home has been about 5 percent per year," according to Frank Northaft, chief economist mortgage giant Freddie Mac. (To his credit, Northaft pointed this out back in 2005, when a flood of investment dollars pushed home prices far above CHPC's normal trend line.)The hopeful interpretation of the chart is that homes are now undervalued and prices are ready to rise.

But notice that over the chart's time span, prices rarely track the "normal" trend line exactly. Other factors always seems to be nudging prices over or below normal.

In the coming year, for example, foreclosures will continue to drag down the housing market – how much depends largely on the success or failure of government foreclosure relief programs.

Freddie Mac tucked its own prediction of where home prices will go into its "December 2009 Economic and Housing Market Outlook." The Case Shiller index, which dropped more than 18 percent in 2008, will fall another 3 percent in 2010 and remain flat in 2011, it projects.

Hmm. Could the lesson be that there's no such thing anymore as normal?

Read Full Story

Find a home

Powered by Zillow