Housing bust nearly over as prices, incomes balance
— -- After years of pain and a market free fall that has shaved $6.8 trillion off the value of the nation's 104 million homes, the decline in U.S. house prices may be nearly over.
U.S. homeowners lost $681 billion this year, according to a study by real estate website operator Zillow set for release today. That's less than the $1.1 trillion drop in value in 2010, let alone the $2.7 trillion in losses in 2008, Zillow said. And a Zillow survey of 109 economists says U.S. home prices will stop falling late next year or early 2013, with the most optimistic quarter of economists predicting an 18% rebound by 2016.
The reason is that the economy is slowly turning around, as prices have come into balance with buyers' incomes and how much they'd pay to rent comparable homes, said David Blitzer, chairman of the index committee at Standard & Poor's, which publishes the S&P/Case-Shiller national home price index.
The negatives are that consumer confidence is low and there's an overhang of foreclosed homes whose owners will discount them for resale, economists say.
"If it weren't for confidence and consumer debt, we'd be in a boom," Blitzer said. "Houses are cheaper than they have been since 2003, and mortgage rates are the lowest in 40 years."
Two key numbers that foreshadowed the housing bust that began in 2006 now point to a stabilization and recovery, economists say.
•The ratio of the average home price to median income is now 13% lower than its average from 1990 to this year, Moody's says. In 2005, the average price was 44% higher than the long-run average.
•The ratio of rental costs to home-buying expenses is about 15% lower than in 2000, according to S&P. At the peak, housing prices were about 20% higher than average, relative to rents.
Economists differ over how sharp the housing recovery will be, said Stan Humphries, chief economist for Zillow. The most pessimistic economist in Zillow's survey thinks prices will decline an additional 26%, he said.
His own forecast is 3% appreciation by 2016 — total, not annually, he said. One reason is that unemployment, while falling, is still high.
The nation's largest real-estate brokerage firm expects little recovery without a turn in the job market, said Richard Smith, CEO of Realogy, owner of Coldwell Banker and Century 21.
"I don't see a spiking recovery until there's an improvement in jobs, and until then it's a steady but slow recovery off a pretty dismal pace," Smith said.
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