Just curious to hear some thoughts on the next 5 years of the housing market. Should we expect normal, historic appreciation close to inflation (3%) or larger jumps? Or is it still a downward spiral? Chicagoland market.
Will we see 10% appreciation again?
By Truth Bunny Follow Fri, 10 Aug 2012, 9:39am 1,782 views 31 comments
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Honestly, it is anyone's guess. Under free market conditions, we might be able to hazard a guess. The market is anything BUT free right now. We do know that the forces manipulating the market are generally trying to push prices in an upward direction, and they are having some success at it just by brute force. I think that sustainable increases in prices require the repair of our economy, increased wages and less publicly held debt, overall. Those things are simple to list, but each has a lot of very complicated things going on within them, and some serious implications if they come to pass.
There are still some wild-cards waiting on the horizon, such as baby boomers hitting retirement age, how our government deals with the debt ceiling issue again (and government spending has a very direct impact on our economy right now), rising energy costs as we lose our ability to keep oil cheap through military force and at least one whole generation saddled with massive student loans and college degree that has no way to pay them off.
In the short-term, I would not be surprised if prices got juiced up again. The stock market is a casino (and retail investors are fleeing in droves as HFT algo's are making it much too dangerous of a place for humans), bonds have crap for returns, cash returns far less than inflation and gold isn't all that easy to deal with. All that is left, as far as investors are concerned, is RE rentals since those seem to be beating inflation and are more certain than the stock market.
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bmwman91 says
Exactly. Under normal circumstances without the government trying to destroy the economy, then certainly no 10% appreciation.
Today's self-destructive economic policies? Possibly.
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You won't see appreciation in anything (houses, cars, retail sales, etc.) until the jobs situation is fixed. People need decent jobs with decent income before anything will grow again....
The only thing that is appreciating is the number of people on food stamps, disability, Medicaid, unemployment, etc....
I don't think anything is going to appreciate under those conditions!!
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I expect no more or no less appreciation than commiserates with wages.
Mid eighties through late 90s wages were stagnant so were home prices.
Late 90's more folks were making 100K+ RE went bazonkers.
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Los Angeles, CA
IMO they are going to keep lowering mtg rates, stall foreclosures, letting people squat for free forever, and doing loan mods galore UNTIL prices get back to near bubble peak.
You see, when 'everyone has equity' in thier home (1996-2006 this was true) then the banks do not let you live free for years in a house with equity. Only the underwater loanowners get to enjoy that special welfare.
Jobs dont matter unless half the population cant work, lowering rates and money printing determine price. If unemployment hit 50% then we can live well like that also - we just let those people get on S-8, or squat in a home while they lower rates and print money.
Yeah, its crazy here.
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Call it Crazy says
Then I guess I better close my eyes here in Phoenix, cause otherwise, I would see appreciation...
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I certainly hope we never see 10% appreciation again. In fact, I hope we never see appreciation of any kind -- zero inflation and zero increases in RE.
For every additional dollar in a house's selling price, that's one dollar less in purchasing power for the person, probably younger than the seller, who's buying it. Long-term appreciation in RE thus basically amounts to a subsidy from younger people to older. The only stable long-term (as in multi-century) trend is for consumer prices and real estate to both be perfectly flat, with each individual home's price determined only by demand for it specifically.
Related question to ponder: is there anything good at all (for society as a whole and not just for Boomers who got in when it was cheap) about the annual near-10% "appreciation" in the cost of a college education over the last 20 years? What if RE had gone exactly the same way, with no declines? Everyone (rightly, in my view) sees the former as a disaster and a form of generational theft. Shouldn't overpriced RE be seen the same way?
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Agreed.
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robertoaribas says
Oh man, it's over and over again with you...... Phoenix ain't the rest of the country and has it's own share of problems......
Your market crashes 75% and is making a comeback and you want to apply that to the rest of the housing market in the country...... it's still way below many of the other markets in the country...
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Michinaga says
I agree, that's the way it should be.... only RE increases in value but nothing else in general does. Do cars, RV's, jetskis, motorcycles, TV's, trailers, boats, etc. increase in value or do they depreciate over time? Somehow along the way, it was assumed that housing should always go up..... bad assumption....
Housing is a roof over your head and shelter and should depreciate with wear and tear like everything else (and should be priced accordingly).
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Most things that appreciate are rare or scarce....
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Truth Bunny says
Houses aren't scarce..... why do they appreciate??
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Call it Crazy says
YOU say nobody is going to see appreciation... I guess everyone in Phoenix is NOBODY then! Logic, read up on it!
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Exactly. Maybe cause the land is scarce...?
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47 male
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Much larger than 10% over 5 years.
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Over 10% per year after 5 years?
Over 10% total after 5 years?
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47 male
Lafayette, CA
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Truth Bunny says
Who knows, but we'll see at least 10% appreciation over 5 years. Probably much more.
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I believe Phoenix properties under $200K will see 10% between today and a year from now... That's why I am buying now.
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robertoaribas says
I guess you would have to ask the 55% of people who are underwater in Phoenix how they feel about their appreciation. I guess they should be happy that they use to be $100K underwater because house values fell 75% from the peak but now since they gained back 20% appreciation, they are now only $80K underwater.
Yea, that's must be big to them...... They should go take that 20% "appreciation" and go on vacation!!!
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Call it Crazy says
yes, when you are shown to be wrong, change the question... By the way, that 55% chart is several months old, BEFORE this runup of 30% and counting, so it is being reduced by several factors:
1. Foreclosures and short sales. No longer underwater, about 18,000 of those over the past 3 months...
2. 30% price increase removes a big chunk of them.
Look forward to continuing improvement in the Phoenix market... with supply so low, demand high, and plenty of unmet demand from buyers who have been repetitively outbid by cash investors...
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robertoaribas says
Well, I guess it depends on your definition of "appreciation"... it appears that ours are different....
In your world, losing originally 75% and then gaining back 30% is "appreciation", even though you are still down from the starting point. I don't call that appreciation!
Now, lets convert that to dollars. You start with $100. and lose 75%. You're down to $25. Now you add back 30%. You are now at about $33. Except you are still down $67. from your starting point. You think that is winning!!
In in your math, you have 30% appreciation. That don't work in my world. You want to ignore your start point to make your story sound better.
I calculate appreciation by taking $100 and adding 30%. That would give me $130. That's what I would call appreciation...
All depends upon how you spin it.....
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call me maybe... Call it Crazy says
really? the market is not appreciating till it goes up from the 2006 peak?
callyounutcase...
the market is up 30% year over year, what do you call that?
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robertoaribas says
Your small little insignificant piece of Phoenix might be up from it's bottom, but it is such a small data point in the big picture that it doesn't matter.
There are like 130 million housing units in the country but you always reference the few thousands in Phoenix as the "trend"... when many others on this board reference the NATIONAL housing market.
We don't care about your little piece of the desert, what happens nationally has a bigger impact on the direction of the housing recovery than your little slum lord empire....
You just don't get it yet!!!!
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Call it Crazy says
Nope, I don't at at all. Rather, YOU said "nobody would see appreciation" and I provided a counter example. Not so good at logic and thinking are you? Call it Crazy says
There is no national real estate market. To refuse to acknowledge markets that aren't behaving the way you want them to, makes you willfully ignorant, hardly a point of pride, but then again, you don't seem smart enough to understand why.
keep with the personal insults like "slumlord" etc, really demonstrates your jealousy!!!
I have 13 appreciating homes now, what you got?
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robertoaribas says
Yep, your right again, it's all about Phoenix, no other area of the country counts... when I look a this chart below, I only see one city listed in the United States, Phoenix, Right??. There is "no national real estate market" and all these other cities have no bearing on the total NATIONAL housing recovery, right??
robertoaribas says
Yea, I guess some are ignorant....
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robertoaribas says
I wouldn't become a slumlord, sorry, landlord for all the money in the world... you couldn't pay me enough to take on all those headaches for such a small return....
I have a bunch of friends that "played that game", got burned and got out.... every single one said it wasn't worth it, every single one!!
I don't need to stick my hand into the fire to see if it's hot, I let others make that mistake and learn from their failures....
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Its true. Being an LL blows.
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Call it Crazy says
I have a property manager... there his headaches not mine!
Call it Crazy says
I guess what they say about 'birds of a feather' is true... your friends must have been as completely clueless about real estate markets as you, if they got burned. buying homes with over 10% return, and no debt, you'll have to explain to me how you get burned...
Call it Crazy says
hmmm, but yet you can't learn anything from someone who timed the sale (2005, got rid of my investments..) and then the buy... last year...
A smarter person would want to know what led to those timing metrics in Phoenix, and see if they could be applied in another market...
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Madison, WI
Housing to the moon for all I care, not sure where the money is coming from, except historically low interest bank loans, lots of foreclosures and short sales to be had yet, just pick your neighborhood carefully, investors buying up for renting is pretty popular right now, popular enough that they are building quite a few more rental complexes in the city I live in.
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Not sure about Chicagoland specificaly - but double digit appreciation is not likley, IMHO.
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25% per year IF banks allow 100 year amortization, or if our children's future income is included in loan qualifying, or if another invention generates trillions like the computer did. But for now, Get google earth and peruse the amount of bare land available .
In normal growth years, real property appreciates at the same rate that the dollar depreciates. Values will continue to plummet as population growth and job creation slows. (no buyers-no value)
If you are the only one bidding on this "green" house, who sets it's price, The seller or the cash holder ?