Contemplating the Future of Home Prices
While opinions vary on where home prices are headed during the next couple of years, most agree that we’ve begun to see the stabilization we’ve hoped for during the past five years. But stabilization is far from a return to the heady days of 2005/2006; and it is also far from what most homeowners—many of whom counted their home’s equity as a significant portion of their net worth—might like to see.
However, the issue for most homeowners is simply, “Will I ever recoup the ‘losses’ sustained during the housing crash?” Sadly, the answer for most is, no. It’s not that their home’s value won’t someday reach the level it attained during the housing boom; it’s just that the dollars received will have lost the purchasing power they had just a few short years ago. In fact, those selling today are receiving dollars that are worth more than 17 percent less than they were in 2005. While most will fail to consider the impact of inflation on their home’s current value, the stark reality is that those who remained in their homes through the boom and bust have lost purchasing power that can never be regained. And with the government printing presses having been in overdrive during the past few years, it seems likely that the rate of inflation will increase during the coming decade.
But the news isn’t all bad. The worst of the declines in prices seems to have passed, and while a future home sale may not contribute to their retirement as many had anticipated, their home has performed just as it should, providing shelter, comfort and a retreat from the confusion of our fast-paced lives. Though most homes failed to provide the investment opportunities many sought and some promised—an analysis of national home prices shows that price spikes during the boom were aberrations, far from the norm—they functioned just as the name implies . . . as homes.
With the effects of the housing crisis now obvious to even the most casual buyer, future homeowners are likely to be more cautious, more discerning and less likely to participate in irrational purchases or risky mortgage schemes. And such caution will ultimately benefit us all.
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