Before this early-00’s housing bubble, single-family homes in the nondescript suburb I grew up in were around $100-$150K for nice, large homes. Great condos could be had for half that.
After the bubble, those same houses are around $500K and those condos are now $250K.
This isn’t in a rapidly growing or popular area normally associated with the bubble.
Will the prices ever return to those original numbers, or the equivalent of them adjusted for a decade’s worth of inflation?
I’d say the answer is more of a “not necessarily.”
The locations that had huge run-ups in housing prices are generally the locations that people want to live in. There are no hot housing locations in which there is a greater supply of housing than people, except in the very short term. A few areas or a few neighborhoods might be hurt, but I know of no area that has seen housing prices return to what they were just a few years ago.
What seems to be happening is that prices go up several hundred percent and the bubble breakage only pushes them down by 25%. That still leaves them far above where they were just a few years ago.
Sure, lots of places in the country have housing prices that are falling, assuming you can find any buyers at all. You can go anywhere in the industrial northeast and be inundated by them, mostly in central cities and inner ring suburbs. They don’t count, because none of them saw any increase in prices over the last few years so none of them are what the OP’s talking about.
Longer term, I got no clue. Either the area in which the OP lives is someplace that is attractive or it isn’t. Short term, though, prices have gone up in most favorable regions and the housing bubble had nothing to do with it most of the time.
If my Econ 101 course from 20 years ago is correct, the intersection where demand meets supply will determine price. see graph
If demand stays low and supply stays high homes will simply not sell. Once the prices come down to the point where the demand for these homes matches the supply they will move again.
With the current stagnant state of the housing market there seems to be no choice but to drop prices.
How low?
Hard to say. You’d have to ask people who are waiting to buy homes. How much can they really afford now that sub-primes are a thing of the past?
I’m sure there are plenty of renters out there and people who were foreclosed upon dying to get into a house. But they now probably have a clearer picture of what they really can afford. Bring the prices down to them and they’ll start buying again.
The OP asks about prices in the Chicago area, but where I live in CA there has not been any drop in prices. Quite the opposite-- prices continue to rise. Volume may be down, but prices are still holding. But then, the supply is limited and demand continues to grow. See the link in Hampshire’s post for an explanation.
That graph is way too simplified for houses. Since house value can represent so much of a person’s net worth, there is an emotional disinclination to lower the price that an ideal market doesn’t have. And there’s just so much friction in each transaction: closing costs, realtor fees, moving costs, taxes, interest, etc.
IIRC, the ratio of house prices to rents had been more or less constant between WWII and 1990-1995 (no cite). That’s the sort of correction I’d expect.
There are far too many variables involved to predict exactly what will happen, market psychology and unknown regulatory meddling (I’m not saying it’s bad!) not least amongst them.
What usually happens following either a large upward or downward spike in most markets is that the market not only corrects, but over corrects, then over corrects for the over-correction, and so forth. Each overcorrection gets smaller, and then the market tends to stabilize after a small number of such oscillations.
There have certainly been exceptions to the above pattern, and even if it holds, the timing and magnitude of the corrections are difficult if not impossible to predict.
This is true in a limited sense. Housing markets have overcorrected, but only in the sense that housing sales have dropped sharply with many houses being foreclosed on because they can’t be sold. That’s not the same thing as saying that overall prices for housing in that overall market area have returned to where they were originally. As I said above, I know of no examples of that. If you do have an example, I’d be very interested to read more about it.
