I recently asked the folks at HSH Associates, the popular and oft-quoted Pompton Plains, N.J., financial publishing house, to run some numbers, and their findings aren’t terribly encouraging.
“It’s going to be a long time coming,” said Keith Gumbinger, vice president at HSH, about the prospects for rebuilding “lost” equity.
I put quote marks around the word “lost” because it’s my opinion that you can’t lose what you never had. So over and above what you paid for your house, your transaction costs and whatever you’ve put into the place in the way of improvements, you haven’t lost a dime. At least not until you are ready to sell.
This much we know: Prices have fallen 32.6%, peak to trough, between 2006 and the third quarter of 2009, according to the Standard & Poor’s Case-Shiller home-price index, which tracks changes in the value of residential real estate in 20 metropolitan regions.
Going forward is pretty much a toss-up, but HSH is assuming a flat real-estate market with no increase in value through June. Then, from July through August 2011, a period of 14 months, prices are projected to increase at a rate of about 2.5% a year. From then on out, the company is figuring on a yearly gain of 3%.
With these percentages in mind, let’s look at what happens to the value of a $200,000 house purchased at the top of the market in July 2006:
By the time the market hits bottom — at least, the bottom according to Case-Shiller — that property was worth a paltry $134,800, a decline of 32.6%. Using HSH’s assumptions, the value of our imaginary house won’t get back to the $200,000 forked over by our fictitious buyer until — are you ready for this? — July 2022.
That’s right: It will be 12-and-a-half more years until this house is once again worth what was originally paid for it.
Again, it’s worth pointing out that this is just an educated guess. Even Gumbinger concedes it takes a “real leap of faith” to project this far into the future.
“We could end up running through a whole other recession cycle,” he said, noting that the U.S. economy tends to fall into a business cycle contraction every 10 years or so. “And house values could move up more strongly or more weakly, depending on any number of circumstances.”
But there it is, in all its cold, sobering reality — a dozen more years just to get back to ground zero.