Expat

Housing Prices Expected to Bottom in 2010, 21% Off '06 Highs

Once again, another house appreciation number based on long-term historical increases. The facts are: house prices bubbled WAY above affordability, "owners" over-extended themselves massively, builders over-built, recession is here, real wages have NOT increased in ten years, banks are bankrupt and new loans will be very hard to get and very expensive.

All this means that house prices will need to hit historical lows (in P/E and income ratio terms). In order to revert to the long-term 2.8 times income ratio, we need to go seriously under the long-term average to compensate for being so far over it.

Owners will not be trading up for years to come as they work through the huge negative equity in their existing homes. New buyers will have a hard time buying as banks demand 20% down and limit price to income. How many under-30's have $40k lying around? How many over-30's have it?

Forget about inflation justifying a 5% rise per year. Take median income, multiply by two. That's your new target for house prices in 2009 and 2010.