For all Americans owning a home, we've watched our biggest asset decline in value to a point where more than 10 years of appreciation has been virtually reversed. At no time in history, in conjunction with the horrenredous mortgage debacle , have we seen the great American dream turn into the great financial black hole. Those who refinanced in past years saw excess equity in their home and refinanced their new mortgage for more than the original mortgage amount, figuring the money tree would grow and bear green fruit forever. And then the unforeseeable happened...housing peaked, and we experienced the unthinkable ...our houses and real estate properties actually began to depreciate in value. Those refinanced mortgages with extra money withdrawn against the then value of the property slowly met and exceeded the value of the home, creating "negative equity: " where the outstanding debt on the property exceeds the appraised value. Add into the mix the fact that banks gave out mortgages like candy regardless of the borrowers qualifications, and we had the worst depreciation of private residences in history. The last 5 years or so have been a harrowing time for homeowners- and lo and behold, the sun has begun shining... finally.
Yahoo headlined "Housing Already Shows Signs of a New Bubble." Forbes penned "Home Builders Could Become Heart Breakers again." A new bubble? I don't think so. For the past 5 years in Phoenix for example, the number of pre-owned homes filled pages and pages of the real estate section due to foreclosures, short sales and people willing to accept just about any offer to get out due to unemployment and any number of reasons. New home building came to a virtual halt due to the fact that the pre-owned homes were so low in price the new homebuilders couldn't compete in price. Guess what-now the pre-owned homes sell as fast as they are listed, and the builders are building like army ants. Demand is now exceeding supply, and from selling out for anything you can get, it's now turned into bidding wars. What a reversal! The S&P Home builder Index was up a whopping 170% last year, and shows no sign of cooling down. Has it peaked? Based on January data single family housing starts are 60% below the long-term average since 1962. As far as existing home sales, we're still 40% below peak levels. Since 2005, a component of the calculation of Gross Domestic Product (GDP), the Residential Fixed Investment (RFI), has been a drag (literally). Not anymore! In the fourth quarter RFI ADDED 0.4% to the GDP. In dollar terms, RFI need to increase another 40% just to reach the long-term average since 1995. Are we there yet? Not by a long shot.
To be fair, the real estate market is not out of the woods yet. As of February, over 13 million American homes are still under water, meaning the homeowners mortgage exceeds the resale value. Foreclosure filings are still coming in, but the pace has cooled. However, in January of 2012, foreclosures in Las Vegas accounted for a whopping 45.5% of sales. Now just one year later in January of 2013, that figure was less than half at 12.5%. A similar trend is taking place in the short sale data as well. Along with that trend, we've seen home prices stabilize and actually begin the climb back up here in the Northeast as well. We're not back to the heights of value we once saw, but we are heading in the right direction. So... is real estate at a quick peak? Based on the preceding data along with heaps of new information coming in, I think we have lots of room to go in the recovery cycle. Not necessarily straight up, but it sure looks like we're heading in the right direction with lots more room for upward appreciation- let's keep our fingers crossed!