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Home Prices Up, It Will Take Homeowners an Average of 11 Years to Regain Lost Value

Written By:
September 27, 2012 at 9:26 AM

FISERV Home Prices Drop Chart

In a report released this summer, the financial services technology company Fiserv states the U.S. housing market started to show signs of reaching a bottom in the fourth quarter of 2011, after five years of declining home values. Fiserv produces the Fiserv Case/ Shiller Home Price Index report.

Of the 384 metro areas the Fiserv Case-Shiller index monitor, prices in 18 percent or 70 of the markets tracked remain stable or increased compared to the fourth quarter (Q4) in 2010. Another 122 metropolitan areas (32 percent) recorded price declines of less than two percent.

During Q4 2011, the average home price in the U.S. fell to the lowest point since the residential real estate market collapsed in 2007.

Price Increases Continued into 2012

In the first quarter of 2012, prices for single-family homes rose in 39.3 percent or 151 out of 384 metropolitan areas. On a year-over-year basis, values declined an average of 1.9 percent. Low inventory of existing homes, which dropped to the lowest number since 2004 at 2.5 million units, accounts for the boost in home prices in most markets.

However, many homeowners, even if they have positive equity in their homes, have decided to hold on to their homes in the hope of recovering lost value before selling. In addition, the number of foreclosures coming to market has declined.

Long Recovery Ahead

Based on Fiserv’s data, the average home value dropped about one-third from 2007-2011 or 33.3%. The four states that generated the most speculative real estate activities during the price acceleration also have the highest foreclosure rates in the nation.

These states suffered the most severe drop in home values:

  • Arizona: -49.9%
  • California: -45.8%
  • Florida: -48.4%
  • Nevada: -59.7%

Fiserv estimates it will take an average of 11 years (2023) for home prices to reach the average peak price established in 2007 -- $ 238,000.

However, the hardest hit states will take longer to recover. With nearly a 60 percent drop in home values, the average homeowner living in Nevada who bought their home near the peak will take about 4 decades to regain ground. This figure depends on an annual appreciation rate of 2.3%.

It will also take Arizona, California, and Florida longer than the average time projected to recover their 2007 values, 26 years, 15 years, and 14 years respectively.

States in the Money

Since the post-boom, in states where the real estate bubble never became an issue, real estate prices have already moved into recovery mode. Texas, West Virginia, and South Dakota home prices have surpassed 2007 levels.

The following states have nearly reached peak prices:

  • Iowa
  • Oklahoma
  • Nebraska
  • Kentucky
  • Vermont
  • Alaska

When real estate markets in the rest of the country experienced significant price increases during the last boom, the above states had more moderate price gains.

Currently, North Dakota has the good fortune of experiencing its own surge in real estate prices. Home values have increased an average 17.7 % over the last five years. The hot real estate market and home values have a direct association with the state’s oil boom.

Homes Are More Affordable

The record decline in home prices, combined with mortgage rate at historic levels (the current average rate for a 30-year fixed-rate mortgage set another record at 3.4%), have home prices at the most affordable level in years.

According to Fiserv, “the relationship between home prices and rents has returned to 1998 levels.”

The ratio of median single-family home price to median family income is an important measurement of home affordability; it sits at the lowest point since 1991.

The average person who obtains a conventional mortgage for a median price home will have a monthly mortgage payment at around 12% of the median-family-income. This metric also touched its lowest percentage since recordkeeping began in 1971.





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