When talking with sellers we find that many are hopeful that prices will go back up but it’s highly unlikely. What happened in the past was the perfect storm for a housing bubble that will likely never happen again in our lifetime. Here are a number of reasons why it happened and almost certainly why it will not happen again.
1. Unregulated loans were granted to people who had no ability to pay for them. Stated loans were made where a person could get a loan based purely upon their credit score with no visible proof of income. Adjustable loans were available that would cap at high interest rates but allow a buyer to get into a more expensive home initially at a low payment. The availability of funds to potential buyers who could not have qualified for a loan grew larger than at any time in history. The increase in the total purchasing power of prospective homeowners drove market prices up with appreciation rates never before seen.
2. Homeowners became investors. With the rapid appreciation of real estate homeowners decided to become investors attempting to build personal wealth by purchasing second and third homes that may or may not have been generating cash flow all the while betting their financial futures on continued real estate appreciation. In 2005 the National Association of Realtors reported that 40% of home purchases were investment or second homes. It caused a boom in the new construction markets especially in high appreciation areas. A person could buy new construction, wait for it to be completed and then upon completion sell it at a tidy profit.
3. Tax free capital gains up to $500,000 for married couples and $250,000 for singles every two years allowed people to continually buy and sell without paying tax on the gain.
If you need to sell a home, the wait for prices to go back up could be a LONG wait! The good news is that if you're buying a home or selling and buying another home, home prices are better than they've been in several years and interest rates are LOW!