Riding the Trillion-Dollar Real Estate Recovery Roller Coaster

by on October 2, 2012

The analogy between real estate and roller coasters is obvious. Everyone knows they both have crazy ups and downs. With the U.S. real estate ride lately, we are all wishing we were riding on the kiddie roller coaster with the small bumps and turns. Unfortunately, it’s more likely we are riding on the Kingda Ka roller coaster with its record-breaking 418-foot drop.

The RealEstate.com team brings you breaking real estate news weekly, and we’ve noticed a trend – real estate news is positive one month and dismal the next. We set out to find a simple way to measure the status of the market, and we found one way to do just that. Here are the resultsreal estate recovery

Real Estate Recovery

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Here’s a little bit about our methodology:
We calculated the total value of the housing market for three separate months – the peak (March of 2007), the trough (Nov of 2011) and the latest (June of 2012). We then calculated the theoretical value of the housing market during each of these periods, by multiplying the average price of a sold home by the estimated number of housing units, using numbers supplied by the U.S. Census Bureau.

These numbers are what they are, and as long as we believe the Census Bureau is accurate in their bean counting, they are absolutely true.

But I know what some of you are thinking. Have we really recovered that much market value since November of last year? Maybe, maybe not. A lot of smart people have calculated that the rebound from the bottom has been less than that, and they may be right.

For one thing, our numbers are not seasonally adjusted. Sale prices in November are typically lower than prices in the summer, so part of this increase could be due to seasonality. Also, the prices could be affected by the mix of houses being sold. Since not all houses are sold every month, the increase in home sale prices could be because more expensive houses are being sold now than they were in November, and not necessarily because the value of those houses has increased. And finally, this is monthly data, and month to month there are going to be some random variations in the data. (In fact, the actual trough came in January of 2009, but the bottom was so sharp and short lived that we chose to use the November of 2011 data point. It makes hardly any difference in the calculation.)

It’s only natural that when making adjustments to data, one’s own assumptions and interpretations may be injected into the mix. We presented raw data on the price of homes sold in a given month. This may or may not reflect exactly what is going on in the housing market, but we leave it to you to make those adjustments and interpretations. What this data truthfully, accurately says is that the price of a sold home dropped 25 percent from March of 2007 to November of 2011, and then increased 10 percent from November of 2011 to June of this year.

We’ve hit on what we think is a simple way to look at what’s happened in the real estate market over the past few months, without chasing the target around the room. Will conditions remain the same? Of course not – that’s the nature of the roller coaster real estate market.

We also understand that national numbers mean little to homeowners across the country who happen to live in stagnant, even still-falling markets. This infographic means nothing to the Atlanta homeowner whose home value fell 12.1 percent from June 2011 to June of this year. The family living in southwest Las Vegas, in a home that is still losing value, will beg to differ with the findings. The gentleman living on the slopes of Hualalai in Kailua-Kona, Hawaii, who just lost another 4.4 percent in home value, thinks this method is just crazy.

So, yes, your mileage may vary when the market is looked at through a national lens. With this kind of complexity and all the variations of local markets, it’s clear that homebuyers and sellers can really use a professional agent to help them navigate these roller coaster times.

real estate recovery

{ 25 comments… read them below or add one }

Mark Hammer October 27, 2012 at 9:01 pm

We seem to cycle every 60 years with 30 years going up, plateau with multiple shakes and then 30 years cycling down with false ups. Each city & state market has its own cycle. Its important to know those patterns before you play the real estate game. I wonder what’s in store after 2012.

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Malcolm Maughan October 22, 2012 at 11:55 am

Thought provoking, however the way I look at this. I came to America in 1995. Bought a home in 1996 for approximately 100k. At the peak I could have sold it for 260k now in 2012 I should be able to sell the same home for about 200k. 16 years, 100% profit at 6.25% per year. Is that not the way of real estate.
The down side only comes if you buy high and then sell low. Timing is everything. Unfortunately we cannot tell the future. Needs change, prompting our actions at a given time. The only thing that worries me is. Have we learned our lesson? This was a man made roller coaster, built by greedy banks and Wall Street and Politicians lobbied to believe! whatever.
All I know now is I wish I had the money or the ability to borrow it. I would have been buying everything on the market. This slump would be over.

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Karen October 12, 2012 at 6:40 pm

This article is good! This is such a big help to those who are interested in increasing their wealth through real estate investment.

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Frank Moham October 4, 2012 at 7:01 pm

All I can say, is that there was no pleasure in this roller coaster ride at all. Losing an average of $70,000 per household and over 9,000,000,000,000 as a country took the fun out of this one!

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Paul Francis October 4, 2012 at 6:59 pm

Unfortunately the infographic provided is distorted because it does not show / consider the climb up that started the roller coast ride to begin with.

2006, early 2007 Home Values were artificially valued due to sub-prime loans, Option Arms and NINJA loans. Take all of those loan products away and values would never have reached your starting point of this infographic to begin with.

(Let’s not even get into all of the Mortgage Origination Fraud that took place.)

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Monique Keith October 4, 2012 at 4:48 pm

Eric,

What a well written article! Living in Arizona and seeing our crazy increases again this past year. It is hard to believe that the rest of the country is not doing this well. A roller coaster is a perfect example of this market.

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Yvonne Seidl October 4, 2012 at 8:38 am

This is an interesting. However, owning a house that lost 60% of it’s value and won’t be regain even part of this value for at least 12 more years, I am not sure a house is a good investment.

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Mark October 3, 2012 at 10:45 pm

Roller coaster rides can be fun or scary. Sadly the housing roller coaster has not been fun for the majority of Americans.

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Greg Bailey October 3, 2012 at 10:07 pm

Timing a real estate market trend doesn’t necessarily have to be as scary as jumping into the super colossal fly-by-the-seat-of-your-pants roller coaster at your local amusement park. There are peaks and valleys, but similar to the ‘roller coaster’ that slows it’s pace at the end of a hair raising loop and dive, our real estate market is also slowing it’s roll based on positive news from realtors, investors and experts around the country. Interest rates are great, home prices have come down to more realistic values and in my humble opinion businesses are poised to re-invest in local economies once a clear plan is understood at the local and federal levels. If you’re a potential buyer and comparing things from a rent vs. own perspective it might make sense to buy while inventory is readily available, banks are lending money at incredibly low rates and available, properly priced rentals become more and more scarce. If you’re a seller you will be competing with short sales and foreclosures but always remember that potential buyers and available inventory always establishes market value. Always consult a local real estate professional in your area for the best possible opportunities.

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Toby Barnett October 3, 2012 at 9:24 pm

I think we’ll continue to see the massive roller coaster the real estate market is on until unemployment numbers stabilize around 5-7% (WA state is at 8.6% as of Aug. 2012) and job growth, as legislatures tout they can do, in the manufacturing segment.

Putting into coaster ride into perspective with homeowner’s loosing $1,375 per month (a house payment in itself) makes it feel so real and there is no wonder many lost their homes – Couple that with a tanking job based economy and here we are. On the rebound side, locally, I’ve seen property values increase but attribute it too low inventory levels versus a economy that is on the mend – I’d glady be wrong on this.

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Jun Choo October 3, 2012 at 10:54 pm

Toby, you make a good point about the low inventory. I think a lot of sellers are sitting on the sidelines because they don’t realize that conditions have improved. I do think we will see a lot of mini roller coasters here on out as inventory fluctuates, and as unemployment ebbs and flows.

But I believe that real estate caused this recession, and it is going to lead us out of it. If we can keep the momentum going a little longer we will see improvements in the economy. When people’s homes are worth more, they feel richer, and they spend more, so companies make more and they hire more, so unemployment goes down, which fuels even more growth in real estate, continuing the virtuous cycle.

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Kerrie Greenhalgh October 3, 2012 at 5:54 pm

The Housing Market Roller Coaster is something our members ride day and night. This is quite impressive and something our members at ActiveRain need to see. Thanks for putting this together!

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Eric Proulx October 3, 2012 at 6:19 pm

Thanks Kerrie for the kind words!

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Brad October 3, 2012 at 10:51 pm

Staggering amounts!! Putting the loss of the real estate markets value in context with China’s and Canada’s combined GDP was very enlightening. It is encouraging to see that someone has finally put our situation in an understandable perspective. We are one third of the way back….and counting. From what I read, it really doesn’t make sense to try and trade in the real estate market without a very sharp agent.

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Paul Francis October 4, 2012 at 7:05 pm

So… everything that led up to the values seen before the peak of the bubble hit in 2006/2007 was normal?

Is it really a loss if you go back before the giant pool of money was poured into the MBS market and every exotic loan possible was conjured up to buy homes for little to nothing down that pushed home values up to unsustainable levels?

There is a reason why it’s called a “Bubble”.

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Alane Jewel October 3, 2012 at 8:25 pm

Nice post. The roller coaster ride and market is def varied across the map nationally depending on your area. I live an hour north of Pittsburgh, in the” rustbelt.” We live in an aged steel town where the housing market has been relatively low for decades in this rural region. It remains down in this year but not quite as bad as other areas in the country, just plateaued with slight loss or gain as there aren’t many risks. We aren’t hit as hard as faster growing areas/economies with damages of a bubble burst, as we are kinda used to weathering the storm economically.

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Mark Frederick October 3, 2012 at 6:45 pm

And despite this huge fluctuation we are still performing better than some other countries. It points to the resilience of our private sector and the American people’s ability to survive and thrive through a major disruption.

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Jun Choo October 3, 2012 at 6:22 pm

I think the most important thing to take away from this is just how big an albatross the housing downturn has been on our economy. The stimulus package was $800 billion. That is less than 1/10th of our losses from the real estate collapse. Nothing we tried to do in the past 4 years mattered at all with the weight of a $9 trillion loss weighing us all down. Now that we’ve turned the corner is time to jumpstart the economy.

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Brenda Somich October 3, 2012 at 3:45 pm

Great data! It would be interesting to see how this year (being an election year) has impacted the real estate market. I live in Reno and despite being one of the harder hit states, we are actually seeing a small bubble in recent months of what I would call “buyer’s frenzy.” Buyers are trying to take advantage of low interest rates and houses are not staying on the market for long. In effect, inventory is short right now. From what I’ve heard, this is a temporary situation as there are still many houses in the process of being foreclosed. And who knows? Hopefully interest rates will continue to stay low after the election.

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Eric Proulx October 3, 2012 at 3:50 pm

An interesting point Brenda. Great to hear some perspective from Reno! We’ll definitely be keeping track to see how the housing market works out after the election.

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Tim Richmond October 3, 2012 at 1:34 pm

Eric (and the RealEstate.com team),

This is an AMAZING infographic. I usually steer-clear of them, but this one tells a clear story and has a purpose. And I love that it’s fact based and shows up. Thanks for sharing!

~Tim

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Eric Proulx October 3, 2012 at 2:05 pm

Thanks Tim for the kind words. Glad to see you liked it

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Brandon McBride October 19, 2012 at 9:22 am

I love infographics, as long as they’re done right they can tell an interesting story. If I like them, I’ll do research on the subject myself. I think it’s a great way to learn.

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Barry Ritholtz (@ritholtz) October 3, 2012 at 10:16 am

Nicely done — unusual perspectives

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Eric Proulx October 3, 2012 at 2:05 pm

Thanks Barry!

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