Real Estate in the 21st Century: What’s Next?

This article originally appeared in the May edition of Mobility Magazine.

After a decade of unprecedented volatility, the picture is brightening.

When asked, “How’s the real estate market?” the traditional real estate agent’s response is, “Incredible!” For most of this century, whether it’s “incredibly good” or “incredibly bad,” that response certainly applies. For many geographies, the average market price graph resembles a scary roller coaster. The S&P CoreLogic Case-Shiller U.S. National Home Price NSA Index (in blue on the chart below) gives a good picture of the roller-coaster effect experienced by most U.S. markets.

The same stats at a regional level lend serious support to the claim that all real estate is local. People in Las Vegas (red) experienced significantly higher highs and lower lows and still have not quite recovered, while those in Dallas (green) are confused as to just what everyone has been talking about. Truthfully, though, more markets shared the national trend line than the gradual increase shown by Dallas. Most markets have now recovered to above pre-recession levels. On a national basis, the average home price is now slightly higher than it was at the top of the market in 2006.

Home Equity

The real estate bubble of 2006 had a particularly detrimental impact on homeowners who purchased during the peak months. As real estate values declined in the ensuing years, many found themselves underwater with negative equity—a scenario that exists when the home’s current market value is less than what is owed on the mortgage. Based on CoreLogic’s equity data analysis, negative equity reached a peak of 26 percent of mortgaged residential properties in the fourth quarter of 2009, seriously impacting more than 12.5 million homeowners. 

Many of these homeowners ultimately lost their properties in foreclosure or simply walked away. For those who stuck it out, the combination of continued mortgage payments and rising home values has paid dividends. In the fourth quarter of 2017, the total number of mortgaged residential properties with negative equity had decreased to 2.5 million homes, or 4.9 percent of all mortgaged properties, and the national aggregate value of negative equity was approximately $283.1 billion. While much improved, the 2.5 million homes remaining underwater are essentially off the market, significantly contributing to the lack of available homes we see today.

Despite the millions of homeowners with negative equity, Americans as a whole are rich in equity, with a total of $14.1 trillion in home equity at the end of 2017, surpassing the height of the real estate bubble of 2006. This bodes well for the economy, as more and more homeowners feel secure enough to invest and make other purchases.

The American Dream

Despite the dramatic ups and downs of the real estate market in the 21st century, homeownership remains the American dream. In Hearth’s “2017 State of the American Dream Report,” survey data indicates that “all generations—including millennials—agree homeownership is very important to achieving the American dream.” More specifically in Hearth’s report, respondents rated “owning a home I love” higher than any other options, including starting a family and finding a fulfilling career.

Read the rest of this article in this month’s edition of Mobility Magazine.

Source: S&P CoreLogic Case-Shiller U.S. National Home Price NSA Index
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