Smart SpendingSmart Spending

Will housing recovery begin in 2012?

Zillow says homes lost $681 billion this year. The good news: Losses are slowing and some believe the worst may be over.

By MSN Money Partner Dec 22, 2011 4:39PM

This post comes from Marilyn Lewis at MSN Money.


Zillow predicts that U.S. homes will have lost at least $681 billion in value this year.


"Holy purple cannibals, Batman!" you might say. That's a big number.


True. It's nearly as much as the 2008 federal bailout of banks, which cost us taxpayers a cool $700 billion. It's more than enough to have funded the Iraq war for three years.

However, it's a whole lot less -- 35% less, to be exact -- than the $1.1 trillion in housing equity lost by American homeowners in 2010. That, for perspective, was nearly twice next year's entire national defense budget, $676 billion.


Mortgage rates break records again

All that despite the lowest rates on home mortgages ever recorded. Today, Freddie Mac's Primary Mortgage Market Survey reports that rates on 30-year fixed-rate home loans averaged 3.91% this week, with an average 0.7 point paid. That's a new record low.


Most of this year's loss in home values happened between January and July, when home prices fell $454 billion. You can find the annual change in home values in your city by using the pull-down menu above the chart at the bottom of this page.


The final numbers aren't in, since the year's not over yet, but "from July to December, Zillow projects residential home value losses will total a significantly lower $227 billion," Zillow's report says.


You might conclude from that that the worst is over. According to Zillow, it is. Probably. But the housing misery is still expected to hang on for a very long run.


Writes Bloomberg:

… prices may fall further under the weight of foreclosures and not rebound until 2013, even as the economy builds momentum and mortgage rates fall to record lows, according to a survey of 109 economists released this week by Zillow Inc. When values do rise, the gains probably won't match those seen in the years prior to the bursting of the bubble in 2006.

Bloomberg spoke with Scott Simon, head of the mortgage- and asset-backed securities teams at Pacific Investment Management Co. in Newport Beach, Calif., who predicts home prices will fall another 7%.

"The new normal is that, if you can get a mortgage, housing is dirt cheap," Simon said .... "You're going to look at a graph someday, and it's going to look like somewhere between Jan. 1, 2012, and June 30, 2013, housing bottomed."

Big cities, big losses

Zillow blames "the unabsorbed pool of housing supply, dragging levels of consumer confidence, high unemployment and negative equity" for pushing the start of a housing recovery into late 2012 or early 2013.


Charts at Inman News illustrate the decline, putting current home prices at levels last seen in about 2004. "Home values have declined 23.7% from a May 2007 peak," says Inman.


Post continues below.

Most of the cities examined by Zillow had losses in home value in 2011. The biggest towns had the biggest losses:

  • Los Angeles, $75.5 billion.
  • New York, $44.8 billion.
  • Chicago, $41.7 billion.

Writes Inman:

Of the 25 largest metro areas, all except Pittsburgh saw year-over-year decreases. Atlanta posted the biggest drop, down 14.7%, followed by Tampa, Fla., down 10.7%. Pittsburgh saw home values appreciate a slight 0.4% year over year.

Only 8% of local markets saw gains this year. For a look at percentage changes in home prices and foreclosures in the 25 largest metro areas, see the chart halfway down this page, at


Zillow also predicts an increase in foreclosures that should help keep home prices depressed.


Anemic light

The Wall Street Journal analyzed a report from the National Association of Realtors this week and found in it "fresh signs that housing is improving." The Journal quoted economist Paul Dales, at Capital Economics:

"We are not expecting to see a housing market that could be described as strong. But despite the downward revisions to sales, a modest recovery may be under way."

The New York Times warns today against drawing "false dawn" conclusions about the economy as a whole based on stronger recent data.


The NAR report also revised what it now says were overly optimistic estimations of home sales. Translation: The housing slump may actually have been even worse than we realized. The NAR says 2.9 million (14.3%) fewer homes were sold between 2007 and 2010 than it previously counted.


In a slide show, The Huffington Post lists the top nine housing markets, based on data released (.pdf file) by Zillow last week.


"Half are in the Midwest, which was not as intensely affected by the real estate boom -- and subsequent bust -- as other parts of the country," notes HuffPo.


Home sales rose in November for the second consecutive month, "the most since January," according to Freddie Mac. New construction of single-family homes also grew between October and November.


The company's chief economist, Frank Nothaft, attributed the growth to low mortgage costs:

Rates on 30-year fixed mortgages have been at or below 4% for the last eight weeks and now are almost 0.9 percentage points below where they were at the beginning of the year, which means that today's homebuyers are paying over $1,200 less per year on a $200,000 loan.

More on MSN Money:

Dec 23, 2011 10:50AM

We’ve been hearing the prediction that housing will recover next year for several years, one of these years it will be correct, but that time is likely a decade away.


From 1900 to 2000 house prices rose the same as inflation, the charts are nearly identical.  From 2000 to 2005 house prices soared while inflation was low.  The market will not recover until prices are where they would have been without the bubble. 


If you take the price a house sold for in the year 2000 and add about 30% to that you will get the price it would be at today if we didn’t have a bubble.  Until prices get to that level the recovery will be elusive. 


The foreclosures and debt that resulted from the bubble will take time to resolve, so the recovery is still some years away.

Please help us to maintain a healthy and vibrant community by reporting any illegal or inappropriate behavior. If you believe a message violates theCode of Conductplease use this form to notify the moderators. They will investigate your report and take appropriate action. If necessary, they report all illegal activity to the proper authorities.
100 character limit
Are you sure you want to delete this comment?


Copyright © 2014 Microsoft. All rights reserved.

Fundamental company data and historical chart data provided by Morningstar Inc. Real-time index quotes and delayed quotes supplied by Morningstar Inc. Quotes delayed by up to 15 minutes, except where indicated otherwise. Fund summary, fund performance and dividend data provided by Morningstar Inc. Analyst recommendations provided by Zacks Investment Research. StockScouter data provided by Verus Analytics. IPO data provided by Hoover's Inc. Index membership data provided by Morningstar Inc.


Smart Spending brings you the best money-saving tips from MSN Money and the rest of the Web. Join the conversation on Facebook and follow us on Twitter.