Will the Housing Market Ever Return to Peak Prices?

For homeowners who bought at the top of the boom ten years ago, waiting to regain the equity they lost when home values crashed from 2006 to 2008 has been a tough slog.

Since so many markets were overpriced during the boom, is it really such a good thing for all of them to return to peak levels? California, Florida, Nevada and Arizona were just four states where markets soared at double digit rates, far above prices that families earning the local median incomes could afford.

Some of those markets are still out of whack today, as prices recover. One thing we learned during the bubble and bust is that real estate is not as risk-free as many once believed.

What does the recovery look like?

During the period when prices were really popping during the boom, 2003-2006, some 16 million families bought homes. Let’s assume for the sake of argument half of those buyers, say 10 million, bought homes at prices higher than they would pay today. Some 4 million defaulted on their mortgages and lost their homes to foreclosure or short sale.

Most of the six million remaining homeowners have paid their mortgages every month, lacking the equity to sell or refinance, and now they are reaping the rewards of their perseverance. Homes.com, which has been tracking 300 of the nation’s largest markets as they restore value, reports that 46 percent have now reached or exceeded the median price levels they reached at the very peak of the boom.

“With the strong sales and price appreciation this spring and summer, it’s just a matter of a few months before more than half of the top three hundred largest markets in the nation will reach or exceed their highest price peaks eight years ago, “said David Mele, president of Homes.com.

But not all are recovering fast

Markets that are still falling short shared an important history. Those markets that rose the most during the bubble and suffered the most during the housing crash are also recovering at the slowest pace. As of May 2015, among the top 100 markets, most of the markets that lost 20 percent of their median value or less during the housing crash now have reached or exceeded their peak prices.

These include a number of markets like San Antonio, Oklahoma City, and Dallas, where prices didn’t rise much during the boom but have flourished lately with the energy industry growth in recent years.

Conversely, some markets that lost more than 20 percent are still far from rebound, including Las Vegas, Orlando, Fort Myers, and Stockton. Providence, RI trails the Homes.com rebound report, having gained only 18.10 percent of the median value it lost.

Will we ever return to peak values?

With housing markets reporting strong price increases this year, the speed of the rebound is picking up and it’s almost certain that we’ll break the 50 percent barrier, as Mr. Mele notes. Perhaps in another eight yeas every market will surpass its 2007 peak, even Orlando and Las Vegas. By then, many if not most of the folks who bought homes in those markets just before the bubble busted will have sold, died, defaulted or rented them out to someone else.

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