Housing Market Only Loss $500B in 2009
|December 14, 2009||Posted by Roshawn Watson under Uncategorized||
By: Roshawn Watson
Home values have dropped $500 billion in 2009, which is not nearly as bad as it sounds considering the staggering $3.6 trillion home values declined in 2008.
Of course, there were some areas that were disproportionately affected. For example, Los Angeles suffered the single biggest decline in home values; properties there loss nearly $61 billion of their values (note that Los Angeles loss over $340 billion last year, so $61 billion is an improvement). Metro Chicago and New York were also hit badly, with each losing over $49 billion.
The Tide Is Turning
Encouragingly, about one-third of home markets surveyed had gains. Boston topped this list, gaining $23.3 billion, with a 1.5% gain in home values. Note last year, the Boston lost $53.4 billion. Other areas postings gains include nearby Providence, R.I., which gained $12.4 billion; and Denver increased $10.7 billion. Even Los Angeles has been doing better recently. For example, even though it will post an overall loss for the year, it has seen six consecutive months worth of gains, as of October.
“Home values stabilized significantly during the second half of 2009, with the total dollar value of U.S. homes increasing since June,” said Zillow’s chief economist, Stan Humphries, in a prepared statement. “Most housing markets across the country had a good summer, spurred largely by the government’s tax credits for homebuyers combined with very low mortgage rates.”
This welcomed stabilization in the housing market is very much needed and has some important implications.
Since the home represents most homeowners’ largest assets, gains in, a slowing of, or a cessation of declines in home values represents a stabilization of a significant chuck of homeowners’ investment portfolios. Thus, this is big news for many. Recall, Americans saw their net worth plummet by 18-23% in 2008, as the market erased 4 years worth of growth in stocks and real estate. Moreover, this stabilization could reflect progress towards overall economic recovery. Note that both the Dow and S&P; have surged over 60% since March.
The Important Of Equity
Home equity is important because it allows homeowners to avoid foreclosure by making money available in the event of a job loss or during other financial challenges. Additionally, equity allows homeowners to sell their homes and make a profit or at least get some of their money back. Indeed, negative equity is the key predictor of mortgage default. Mortgage default typically occurs when a borrow experiences a rough financial stretch and has substantial negative equity.
The major contributors to positive signs in the housing market are believed to be the government’s tax credits and low mortgage rates. The Fed will slow down its purchasing of mortgage-backed securities, which will likely spur a mortgage rate increase after the first quarter of next year. Additionally, the tax credits are scheduled to end next spring as well, so the immediate future of housing remains unclear. However, in the long-term there are several markets that are poised for a recovery.
It is always dangerous to speculate with your house. Your house is where you live, and unless you plan on selling it or really need to access the equity to avoid foreclosure or bankruptcy, the value of the house should have a marginal impact on your day to day life. However, as with any sound investment, if you have a long-term strategy, you can usually avoid getting your head taken off.
Copyright 2012, Roshawn Watson, Pharm.D., Ph.D. All Rights Reserved.