According to a BusinessWeek analysis of the U.S. real estate market over the last 30 years, it will probably take 15 years or more for home prices in many parts of the country to get back to their inflation-adjusted highs.
The 2007 forecast for residential real estate is grim at best. The communities that will be next year’s “winners” will post low single-digit price gains at best—these will be cities like Dallas and Houston that never experienced an explosive housing boom. Places like Raleigh, NC and Seattle, with strong economies and lots of jobs, will also fare well, in comparison to the rest of the country.
But there will be widespread suffering in Detroit, where the economy is shrinking. Also in Phoenix, Miami, and Las Vegas, where vast numbers of homes and condos sit unsold for months. In many California cities like San Diego and Los Angeles, prices are still impossibly high considering market conditions, and buyers aren’t interested.
Housing busts can last an agonizingly long time, so don’t believe any claims that the worst is already over. We will most likely see prices falling further in many markets in 2007. Prices may come up in others, but will not match the pace of inflation.
If you need to sell your home and can’t find buyers, the best tactic to take is to severely slash your asking price. If you cut your price little by little, you’ll end up “chasing the wave,” and follow your competition all the way to the bottom.
If you’re a buyer, keep in mind that many sellers are in denial about the state of the real-estate market and are still asking too much. Don’t give in to their demands.
Real-estate speculators seeking instant profits were largely responsible for the massive spike in housing prices, but at this point that particular party is over. According to Richard J. DeKaser, chief economist of Cleveland’s National City Corp., “We’re looking at several years of weak home prices. It’ll return to the time when no one is talking about real estate.”
But in the long term, buying a home is almost always a safe bet, because in addition to any monetary gains it may provide, it gives you something no other investment can: a place to live.
