Real estate to lose another $1 trillion, say economists

With word that the recession is long over and a jump in corporate profits it might seem as though real estate values should be roaring back. Okay, if not roaring how about just nudging up a bit?

Unfortunately, that may not be the case according to one well-regarded economic study.

“The survey data we collected this year have consistently pointed to price stability in the intermediate- to long-term, which is reassuring in light of the volatility in actual home prices we have witnessed during the past few years,” says Terry Loebs, managing director with MacroMarkets. “However, most experts foresee a longer road to recovery, and materially lower price performance in the coming years than they did just a few months ago.”

Loebs added that “one can infer from the December data that the aggregate value of U.S. single-family homes four years from now will be roughly $1 trillion less than projected in May. Weak market fundamentals persist and continue to gnaw at wealth and confidence in these uncharted, post-bubble waters.”

A survey of economists, real estate experts, investment and market strategists by MacroMarkets found that on average they expect market values to fall .17% nationwide in 2011. The survey is based upon the projected path of the S&P/Case-Shiller U.S. National Home Price Index over the coming five years.

The good news — if predictions are correct — is that the panel also felt that home prices would start rising in 2012 (1.94%) and would continue to increase in 2013 (2.86%), 2014 (3.45%), and 2015 (3.67%).

Real Estate As a Localized Commodity

The view here — from someone who is NOT an economist, real estate expert, investment strategist, market guru, soothsayer or seer — is different.

First, national real estate averages are interesting but often not relevant to local buyers and sellers because individual markets do not necessarily follow national trends.

As an example, the National Association of Realtors says in the third quarter that 30 out of 155 metropolitan statistical areas had higher annual price increases.

Or, just look at foreclosure patterns. Ten states, according to RealtyTrac, account for more than 70 percent of all foreclosures nationwide.

Second, there are local markets within metro areas with differing levels of real estate demand and supply — and thus differing pricing patterns.

Third, real estate is a nonhomgeneic commodity — a fancy term meaning that all properties are different. For any number of reasons — location, history, condition, size, zoning, etc. — a given property may be wildly in demand even in the midst of generally falling prices.

Fourth, all predictions are out the window if employment levels suddenly improve, unemployment levels quickly rise, or if mortgage rates remain which are now below 5% quickly move higher.

The bottom line: As a buyer you want to point to national predictions which forecast lower home values nationwide in 2011. As a seller if local price trends differ from national projections you want to say hey, let’s look at recent sales in this market, this neighborhood and with this type of property.

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1 Comment on "Real estate to lose another $1 trillion, say economists"

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  1. Interesting stuff. I think it’s also important not to discount the level of motivation on the part of both buyers & sellers. For many buyers these days, buying is an optional undertaking. For many sellers, selling is a necessity (but not always). This, more than national or local trends, often seems to dictate which properties are moving in this current, much slower, market,

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