Many people would like to know when the housing market is going to hit bottom. But those who plan to stay put don't care as much about the bottom as they do about when their home values will return to where they were before the bubble burst.
HSH Associates, a Pompton Plains, N.J.-based financial publishing house, ran some numbers to address that question recently, and the findings aren't terribly encouraging.
"It's going to be a long time coming," HSH Vice President Keith Gumbinger said of the prospects of rebuilding equity. "Even in a reasonable interest-rate environment, even with reasonable appreciation."
According to the Standard & Poor's/Case-Shiller index, which tracks changes in the value of residential real estate in 20 metropolitan regions, prices have fallen 32.6%, peak to trough, between 2006 and the third quarter of 2009.
HSH is predicting a flat real estate market with no increase in value through June 2010. Then, from July 2010 through August 2011, a period of 14 months, prices are projected to increase at a rate of about 2.5% a year. And from then on out, the company is figuring on a yearly gain of 3%.
With these percentages in mind, let's look at what would happen to the value of a $200,000 house purchased at the top of the market in July 2006.
By the time the market hit bottom -- at least the bottom according to Case-Shiller's 32.6% figure -- that property was worth $134,800. Using HSH's assumptions, the value of the imaginary house won't get back to the $200,000 paid for it until July 2022 -- 12 1/2 years from now.
Even Gumbinger concedes this educated guess takes a "real leap of faith" in projecting this far out into the future.
"We could end up running through a whole other recession cycle," he says, noting that the U.S. economy tends to fall into a business-cycle contraction every 10 years or so. "And house value[s] could move up more strongly or more weakly, depending on any number of circumstances."
Following the value line, look at a house that was purchased for $200,000 in January 2000. Based on the Case-Shiller index, this property reached its top value in July 2006, when it was worth $413,040. If the buyer sold at that time, he would have netted a gain of 106% and change.
Using HSH's projections, this $200,000 house purchased at the turn of the century won't be worth $413,000 again until December 2021.
That's not quite as long as it will take the house bought at the top of the market to regain its value, but it's still going to be 11 years and 11 months.