I Hate To Be Johnny Raincloud, But This Does Not Look Good

Posted: November 11, 2008 in Economy

For those of us in the bubble markets, that is.

The Changing Prospects for Building Home Equity: An Updated Analysis of Rents and the Price of Housing in 100 Metropolitan Areas [PDF]


The Prospects for Accumulating Equity

Despite the collapsing housing bubble and consequent fall in house prices in bubble markets, the
prospects for accumulating equity still look grim for homeowners as prices are still far from reaching
their historical norm. The relative merits of owning and renting will be affected by the extent to
which homeowners can accumulate equity. Even with the general increase in house prices at the
same rate as the overall rate of inflation, homebuyers are at risk of facing plunging home values in
bubble inflated markets.4

Table 1 below shows that more than 60 metropolitan areas will accumulate less equity in 2012 for a
recently purchased home than a home owned from six-months ago. Out of 100 metro areas, 33 are
projected to accumulate negative equity in 2012, as opposed to 34 metro areas in our previous
report. In fact, all 33 metro areas are in bubble markets as indicated by Table 1 below. They will
generally accumulate slightly less negative equity in 2012 than our previous report predicted, due to
the decline in house prices and the modest increases in rents assumed in this analysis which is
returning the annual rent to price ratio to historical levels. Nevertheless, house prices across the
bubble markets still have a long way to fall. In comparison, metro areas without housing bubbles
will likely accumulate positive equity in a relatively short period of time.

The only bright spot for me in this is that now would be a great time for my Mom to move out here and buy a home at East coast prices.


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