Stock investors are cheering their gains, wealthy people are shopping…while the housing market continues the decline it began 4 ½ years ago.
The economy technically exited the recession last year, but try telling that to someone trying to sell their home, or just make their mortgage payments. While the general economy is limping along, the fact is the U.S. housing market has just gone into Great Depression territory.
The Great Depression saw home values fall 25.9 percent. We just hit 26 percent in November 2010, according to Zillow. And prices will continue to fall this year as the competition of foreclosures continues to bring down prices of existing homes for sale, and limit the ability of homebuilders to construct new homes. Some see another 20% decline in home prices before we bottom out.
And once the housing market bottoms, it’s a long way back to recovery. Home prices do not experience the types of “V” recoveries that the stock market does — there are usually many years of relatively stable prices before they begin to accelerate.
But will we really see acceleration this time around? The demographics have shifted in this country, and eighty million baby boomers are downsizing. That’s a lot of people looking to get out of the large homes they raised their kids in and moving into smaller homes, senior villages, retirement homes, and with longer lives and smaller net worths than expected, even renting. There simply won’t be the demand to create another boom in real estate prices for some time.
So, we can now call the housing collapse by the more appropriate name, The Great Housing Depression of 2006 – ?. I hope within a year or two we will be able to fill in that question mark with an ending date.