REAL ESTATE TRENDS: A change in home values

Analysts say era of wild rises is over.

Housing will eventually recover from its great swoon. But many real estate experts now believe that home ownership will never again yield rewards like those enjoyed in the second half of the 20th century, when houses not only provided shelter but also a plump nest egg.


The wealth generated by housing in those decades did more than assure the owners a comfortable retirement. It powered the economy, paying for the education of children and grandchildren, keeping the cruise ships and golf courses full and the restaurants humming.


More than likely, that era is gone for good.


“There is no iron law that real estate must appreciate,’’ said Stan Humphries, chief economist for the real estate site Zillow. “All those theories advanced during the boom about why housing is special — that more people are choosing to spend more on housing, that more people are moving to the coasts, that we were running out of usable land — didn’t hold up.’’


Instead, Humphries and other economists say, housing values will only keep up with inflation. A home will return the money an owner puts in each month, but will not multiply the investment.


Dean Baker, codirector of the Center for Economic and Policy Research, estimates that it will take 20 years to recoup the $6 trillion of housing wealth that has been lost since 2005. After adjusting for inflation, values will never catch up.



“People shouldn’t look at a home as a way to make money because it won’t,’’ said Baker.


If the long term is grim, the short term is grimmer. Housing experts are bracing themselves for tomorrow, when the sales figures for July will be released. The data is expected to show a drop of as much as 20 percent from last year.


The supply of homes sitting on the market might rise to as much as 12 months, about twice the level of a healthy market. That would push down prices as all those sellers compete to secure a buyer, adding to a slide that has already chopped off as much as 30 percent in home values.


Set against this dismal present and a bleak future, buying a home is a willful act of optimism.


In an annual survey conducted by economists Robert J. Shiller and Karl E. Case, hundreds of new owners in four communities — Alameda County near San Francisco, Boston, Orange County south of Los Angeles, and Milwaukee — once again said they believed prices would rise about 10 percent a year for the next decade.


With minor swings in sentiment, the latest results reflect what new buyers always seem to feel.


“People think it’s a law of nature,’’ said Shiller, who teaches at Yale.

David Streitfeld  New York Times / August 23, 2010