Yes, Housing Prices Can and DO Decline
Author: Joshua Dorkin • URL: http://www.biggerpockets.com/September 20th, 2005 •
I’ve been looking for some time to find someone out there who is willing to face the fact that housing actually works in cycles. Every guest on the cable news programs reminds us that the market can’t and won’t go down. It upsets me that there are rarely guests brought on to share the other side of things. I finally found an article that shares some good statistics about past market declines.
the average house price in L.A. dropped from $222,200 in 1990 to $176,300 in 1996, a loss of 20.7 percent. . . . Furthermore, those are nominal prices, not real values. To calculate the loss more realistically you would have to figure in the cost of inflation: $222,200 in 1990 would have been worth $266,700 in 1996 dollars, which means the actual loss for homeowners buying in 1990 and selling in 1996 was closer to 34 percent.
The article goes on to talk about other cities and metro-areas . . .
In Oklahoma City prices plummeted 26 percent from 1983 to 1988. It took 15 years for prices there to return to nominal 1983 levels.
Houston home prices fell 22 percent from $111,000 to $86,800, and also took 15 years to rebound.
Counting inflation, the average Houston home, which cost just $159,700 in 2004, is actually worth less now than it was 22 years ago. When, adjusted for inflation, a home cost about $219,000 in 1983. In Oklahoma City, the inflation-adjusted price in 1983 was $196,600. Today, it’s just $135,100.
You can find a good chart with percentage losses and recovery times for quite a few US cities on the article. Take a look.
Source: CnnMoney
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Joshua Dorkin
Charles Feldman
Ted Karsch.
Troy Schuricht
Anwell Tsai
Richard Warren
Jim Watkins
When I jumped into the commercial appraisal field in 1991, everybody thought the ship had sunk, but low and behold, the Southern Californa Real Estate Market had more room to plummit and it continued to decline until 1994 when it flattened out and remained relatively flat until 1996/1997.
People seem to have forgotten those days.
When I hear people say that the real estate market is solid and will NEVER drop I am reminded of the days between 1992 and 1995 associates were saying the Southern California Real Estate Market is DEAD and will NEVER come back.
Never say never!!!
Good article! Thanks for posting it!
Jim
http://www.commercial-appraisal.net
Glad you enjoyed the post! People are often afraid to see the truth sometimes when they are blinded by the premise of money.
3 cheers for “regression to the mean”!
everything works in cycles. humans are wired to forget that and generally believe that the present state[whether good or bad] will continue indefinitely.
Nice to read that I am not the only one who sees troubling signs in the real estate market. Living in Maui, median home prices here have skyrocketed over the last several years, and are now hovering @ 1 million….(MEDIAN!). No one here belives these houses can ever decrease in value. Interest rates are in an area where we have no historical data to suggest what might happen in the future, only that lenders are now willing to do whatever they can (interest only!, 110% financing, ARM’s w/ balloons….etc), to make you feel you can afford the unaffordable…to keep this upward trend alive. RE is cyclical…and nothing goes up forever. But try to convince those who have EVERYTHING tied up in a 700K mortgage and a 60k/year job. I am truly amazed at how short-sighted and debt-unconscious most adults are today. But, I’ve been saying this for the last 5 years…and everyday…there are 100 more real estate guru’s telling me how wrong I am. I guess time will tell…but I favor what history tells me as opposed to what my neighbor’s blind faith.