According to an article on Kiplinger.com, the recovery process will be gradual, but home prices will stabilize by this spring. “Look for prices, which have fallen an average of 31% since 2006, to drop an additional 2% or so in the early months of 2012 and then recover that lost ground by the end of the year.”
A key signal that the bottom is near: A change in the ratio of average homes prices to personal income – houses are affordable again. After soaring to 4-to-1 during the housing boom, the ratio is now well below the long-term average of 3-to-1.
Another reason for optimism: Foreclosure numbers are set to level off after a recent surge to clear up the backlog that developed when banks were found to be rushing though the paperwork for seizing homes. Although the 3.5 million foreclosures still in the pipeline are weighing heavily on the housing market, that effect will diminish when it is clear that the worst has passed.
Look for home sales to tick up next year as well, hitting 5.5 million for new and existing homes. That’s up 4% from 2011, the low point since the housing bubble burst.
Farther down the road, there is plenty of pent-up demand. The lousy housing market has muffled the typical rate of household formation, deterring many young folks from getting their own homes. As a result, there are 2 million new households waiting for an improvement in economic conditions: recent graduates eager to leave their parents’ nests and 30-something couples who have delayed marriage or having children. As the economy picks up steam, they will emerge, helping to soak up the glut of foreclosed homes and putting construction on a faster track.
By 2014, the housing market will start to look more like its old self, with housing starts near the long-term average of 1.5 million a year, sales of about 6 million and price gains of over 4% a year.
Of course, the market shift won’t make much immediate difference for the millions of homeowners who owe more than their homes are worth. But for the majority with equity in their homes, even a modest gain in prices can change their spending behavior.