Economists Ponder Future of Home Prices

When will home prices go back up again?

Economists surveyed by The Wall Street Journal say that home prices won’t hit bottom until the second half of 2009 at the earliest and some say the downward trend will continue until 2011 or 2012. After that they may rise again, but not nearly as fast as they have in the last decade. Instead they will rise just a little faster than inflation and stay in line with increases in household income.William Wheaton, a professor of economics and real estate at the Massachusetts Institute of Technology, says he expects house prices to increase at a rate roughly 1-percentage point higher than inflation over the long term.

Celia Chen, director of housing economics at Moody’s Economy.com is more optimistic, expecting home values to rise an average of 4 percent per year over the next couple of decades.

Demographer William Frey predicts that growth will continue in coastal and Southern cities while populations in rustbelt areas like Michigan, Ohio, Western Pennsylvania and Upstate New York will continue to decline.

The great unknown is the impact aging baby boomers will have. While retirees in the past have often headed for warmer and suburban areas, boomers have tended to confound expectations. They could well show a propensity for staying put or moving to urban areas for the cultural life or to be near friends and family, shunning sun-dappled retirements communities.

Source: The Wall Street Journal, James R. Hagerty (12/02/2008)