Housing Market Predictions: 4 Myths Of Today's Housing Market

I'm often asked for my prediction of when the housing market will return to normal. I always respond, "What's normal?"

Those who ask for my housing market predictions want me to reassure them that their homes will soon be worth again what they were worth in 2005 and 2006. (Good luck with that!)

Unfortunately, when it comes to making housing market predictions, what I'm hearing at the annual National Association of Real Estate Editors (NAREE) conference is that there are no easy answers:

• Loan modifications are going to be a painful process.
• Foreclosures are going to continue to rise for awhile.
• We haven't hit the true bottom of the housing market (maybe by the third quarter of 2010).
• The housing tax credits were by and large a failure. In the spring extension and expansion of the home buyer tax credits, less than one in five buyers purchased because of the tax credit.

"Most consumers tend to be overly optimistic about what the future holds," he began, before laying out his four myths:

1. The housing recession is over. If you step back and look at why consumers believe this, it's not unreasonable. But it's wrong - the housing recession is not over, Humphries explained. Prices are continuing to fall and may bottom out in the third quarter of 2010.
2. Housing prices will return to historical appreciation rates after we hit the bottom. "We don't think this will happen. We think the bottom is going to be a long and flat affair," Humphries added. "Think about it less in terms of a bottom than as second phase of the housing market. First part was 3 to 4 years of precipitous price declines. What we're going to see at the bottom is second phase of housing recession. The good news is that this is flat and not down." In other words, think about the recovery as being an L instead of a V.
3. Worst of the foreclosure prices is behind us. Not true, Humphries says. "Foreclosures are increasing and we will reach a peak in foreclosures later this year. These foreclosure rates won't recede quickly. They'll stay high."
4. The tax credits saved housing market. Humphries says he feels this is largely not true. With 50-year historically-low interest rates, home prices down more than 20 percent from the peak value, and FHA ramping up its role, Humphries feels the housing market would have eventually saved itself. "Arguably, the tax credits shifted the psychology - or at least the first round of tax credits [that would have expired on November 30, 2009] changed the psychology," he explained. "In the fall, for every 5 homeowners who took the tax credit, only one was incented to buy a home that he would not have bought. The incremental price per buyer was $45,000. But I think the incremental demand for spring was much less." In short, Humphries feels we stole demand from this year and pushed it into the tax credits. "We will see payback in July and August," he said.

Twice as many homes were added to the market as were sold in April, according to the National Association of Realtors. The housing inventory is back to where it was in 2009, which is lousy news for home price appreciation.

If you really want to know when the housing market will return to normal, the real estate experts and economics at my conference are talking about 2013 - or longer.

Read More:

• 3 Reasons Why Now Is The Best Time To Buy A Home
• Housing Market Predictions for 2010: How Good Will It Get?
• 1.2 Million Households Lost in the Great Recession
• Tax Credit Daze: Why It Might Take Months To Get Your Home Buyer Tax Credit Cash
• Are You In Loan Modification Hell? Join The Club
• 2010 Will Start With Strong Home Sales. But What Happens After The Home Buyer Tax Credits End?
• What Can You Buy For $950,000?
• What Can You Buy For $625,000?
• What Can You Buy For $250,000?