US house prices will not reach pre-recession levels until 2017
US house prices continue to climb, but new research reveals that they will not reach pre-recession levels until 2017, a decade after the housing crisis began.
The housing recovery is "very much in its middle stages", according to Zillow's latest Home Value Forecast. Prices continue to climb and demand remains strong, but despite the broadly positive conditions, the market has a long way to go to reach its previous peak.
Nationally, home values remain 11.3 per cent below their 2007 levels. With home values expected to rise 4.2 per cent through the second quarter of 2015, it will take 2.7 years of growth at that rate for properties to recover their lost value.
In dozens of markets, homeowners who bought at the peak of the market in 2006 or 2007 will have to wait until the first quarter of 2017 at the earliest to get back to the breakeven point on their homes, a lost decade in which they will have built up no home equity. In some large metros, it will take even longer for full recovery to be achieved: Minneapolis (14.5 years), Kansas City (12.5 years) and Chicago (11.7 years).
"This [lost decade] is reflected in stubbornly high negative equity and effective negative equity rates, with more than a third of Americans with a mortgage lacking enough equity to realistically list their home for sale and buy another,” said Zillow Chief Economist Dr. Stan Humphries.
“But there is a silver lining as we navigate these tricky middle innings of the recovery. Because home values remain so far below their peak levels in so many areas, it is still possible for buyers to find bargains. This will be critical to maintaining home affordability over the coming years, especially as mortgage interest rates rise.”
Indeed, mortgage rates have caused affordability of US property to decline, seeing sales slip in the early months of 2014. Nonetheless, the normalisation of the market is creating more stable, balanced conditions. In June, existing-home sales reached an annual pace of 5 million for the first time since October 2013, according to the National Association of Realtors.
Lawrence Yun, NAR chief economist, said housing fundamentals are moving in the right direction: “Inventories are at their highest level in over a year and price gains have slowed to much more welcoming levels in many parts of the country. This bodes well for rising home sales in the upcoming months as consumers are provided with more choices,” he said.
“On the contrary, new home construction needs to rise by at least 50 percent for a complete return to a balanced market because supply shortages – particularly in the West – are still putting upward pressure on prices.”
The median existing-home price for all housing types in June was $223,300, according to the NAR, 4.3 per cent above June 2013 and the 28th consecutive month of year-over-year price gains; a sign of how far the market has come since the recession.
Nonetheless, the days of booming price rises is over. US home values climbed 6.3 per cent year-over-year in the second quarter to a Zillow Home Value Index of $174,200, the slowest annual pace of appreciation recorded so far this year.