When housing prices started falling in 2007, the collapse created a vicious cycle. As prices fell, more and more homeowners found themselves underwater and more and more homes fell into foreclosure. In turn, the banks’ panic pricing for foreclosed units drove prices even lower, which caused even more homes to go into foreclosure. And so on.
Now, with prices finally rising, the mortgage delinquency rate is declining and that tends to push prices higher, which tends to further reduce delinquencies…and so on.
Largely as a result of the pricing phenomenon, Deutsche Bank now forecasts that housing prices on a nationwide level will increase by 21.5% over the next three years. If the bank is correct, that will push prices up to the 2006 peak (see top table).
Deutsche Bank further forecasts that the housing price recovery will be uneven in the top 25 housing markets (see bottom chart). For the most part those markets that were hit hardest by price declines (among them, Seattle, San Jose, Washington, DC and Phoenix) will see the biggest rebounds. But, and this is important, the forecast shows housing prices rising in all 25 key markets.
Falling prices wreaked havoc with consumer confidence. Rising prices should have the opposite effect. And that sounds like good news for housing. Or, as Deutsche Bank put it, “housing’s lost decade is almost over.”
Learn more about markets featured in this article: Phoenix, AZ.
