Buy a house, pay the monthly mortgage, watch your home's value grow, and eventually sell it and fund your retirement dreams. It seemed to be the natural order of things until the bubble burst. For older homeowners, the new order of things is to either sell your home at a huge loss or stay put and hope things will get better before you're too old and frail to have any retirement dreams left. For recent homeowners, there is no dream. But there is a nightmare: Buy a house at an inflated value, pay a teaser mortgage until you can't afford it, watch your home's value fall like a rock, and then sink with that rock as you either default, renegotiate your loan, or sink further underwater each month. Renting never looked so good.
Still, things are recovering, albeit slowly. And older homeowners can at least begin to plan an exit strategy. The S&P/Case-Shiller Home Price Index showed recovery in the third quarter—its second consecutive quarterly gain—and while prices are nearly 9 percent below a year ago, they are finally moving in the right direction.
In the 20 markets tracked by the index, S&P says, "Las Vegas remains the most depressed market. Prices have declined for 37 consecutive months, with a peak-to-trough reading of -55.4 percent." Prices in Las Vegas were nearly 29 percent lower in the third quarter than a year earlier, while the other largest year-over-year declines were in Phoenix (down 22 percent) and Detroit (off 19 percent). The best performances were turned in by Dallas and Denver (down only 1 percent) and Boston (off 3 percent).
The National Association of Realtors (NAR) tracks median home prices in nearly 170 metropolitan areas. While median prices during the third quarter were down more than 11 percent from a year earlier, the NAR says it's seeing gains in the volume of home sales, including nine straight monthly increases in pending home sales.
Another key element of future shifts in housing demand involves the pace at which people are moving around the country. Here, too, the bursting of the real estate bubble and steep recession literally stopped people in their tracks. William Frey, a demographer at the Brookings Institution in Washington, recently reported that Americans moved less during the past two years than at any time since World War II. In addition to the factors depressing the housing market, he notes that the flood of immigrants into the U.S. effectively disappeared during the recession. Without economic opportunity here, people simply stayed away, or even returned to the countries of their birth.
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The search for employment became the dominant driver of interstate moves, Frey said in a recent research paper. It explained 46 percent of all such moves in 2008 and 2009, while the search for new homes was the deciding factor in only 14 percent of interstate moves. In earlier years, priorities were weighted differently.
Looking at overall metropolitan patterns is only part of the story about migration shifts, Frey said. It's also important to look at shifts within metro areas. The historical advantages of suburban homes may have given way to core center cities and other densely populated areas. In many metro areas, the migration rates into suburban areas have fallen much more sharply than for cities.
If seniors want to see better markets for selling their homes, Frey says, their fate rests to some extent on where millenials and other younger people want to live. Frey says roughly 40 percent of migration in the near future will be by these younger consumers. The "hot" markets of the early years of this decade were in warm climates of California, Texas, and Florida, for the most part. Their appeal has faded although they are likely to benefit as housing markets recover and the pace of moves picks up.