Era Of Homes As Piggy Banks May Be Over For decades, many homeowners used rapidly-growing home equity to pay for college, home improvements and retirement. But the recession has triggered plunging home prices across the country. Some experts say home buyers may never again see the high returns they had come to expect.
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Era Of Homes As Piggy Banks May Be Over

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Era Of Homes As Piggy Banks May Be Over

Era Of Homes As Piggy Banks May Be Over

Era Of Homes As Piggy Banks May Be Over

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  • <iframe src="" width="100%" height="290" frameborder="0" scrolling="no" title="NPR embedded audio player">
  • Transcript

For decades, many homeowners used rapidly-growing home equity to pay for college, home improvements and retirement. But the recession has triggered plunging home prices across the country. Some experts say home buyers may never again see the high returns they had come to expect.


Stan Humphries, chief economist,


For most of the past century, homeowners used their houses as piggy banks. A steady rise in value meant that generations were able to use home equity to send their kids to college, to pay for home improvement and to provide for their retirement. And that was all before the bubble. Afterwards, it now looks like those days are gone for good. While the housing market will recover, eventually, analysts say it may never recover all the value lost and that homeowners should not expect their property to perform much above the rate of inflation.

So what role does your house play in your investments? 800-989-8255. Email us: You can join the conversation at our website. That's at Click on TALK OF THE NATION.

Joining us now from his office in Seattle is Stan Humphries, chief economist for the real estate site: And nice to have you on the program today.

Mr. STAN HUMPHRIES (Chief Economist, Hi, Neal. How are you?

CONAN: I'm well. And the long-term view - there's some fascinating studies that find - research by various opinion surveys show that people expect their homes to accumulate 10 percent in value over the next decade.

Mr. HUMPHRIES: That's right. Yeah. It's, you know, it's amazing how high people's expectations about real estate appreciation have been set. And that's largely a phenomenon of the past, really, since the late '90s, when real estate markets started to see above-average appreciation rates and people got used to these, you know, right before the market peaked. You were seeing, in some markets, appreciation rates of between 15 to 30 percent year-to-year increases, which were clearly not sustainable. Really, on the long-term, real estate returns more in the two to 4 percent range, and I think people have forgotten that, given the heady appreciation of the past years.

CONAN: But there's been heady depreciation over the past couple of years - 30 percent.

Mr. HUMPHRIES: That's right, yeah. I mean, you know, currently, we're down. And home values have peaked. On our end, they're actually down about 24, 25 percent from peak. And values have been reset about six years, nationally. And many markets have been reset further than that -so substantial depreciation in real estate prices.

But I think people think that the - this current downturn is just a blip and that once we're past this, we're going to go back to - we're going to see more of a V-shape recovery in the housing market, and we'll go back to very - you know, to very high appreciation rates. And unfortunately, I don't think that's in the offing for us.

CONAN: And why not? I mean, not maybe the, obviously, the boom period of the bubble, but why not the post-war period where housing steadily improved over inflation?

Mr. HUMPHRIES: Well, it's important to remember that, you know, there are certain periods in - particularly, the post-war period - when you were bringing in a lot of additional housing demand. So you'd had a fairly suppressed period of demand during the - both the Great Depression and during the war years.

And then you had, on top of that, returning veterans and also new mortgage products that made housing within the reach of a lot more Americans. You had a G.I. Bill, which also brought - increased the ability for returning veterans to get into the market. So you really kind of goosed demand during those period - during that period of time. And so that's probably not a good analogy to look at, either.

You know, but if you look, you know, typically over the, you know, a longer period of history in the housing market, you know, two to 4 percent, which roughly tracks inflation, or alternatively also tracks the growth in household income, that's typically what you, you know, what you find, and that you will see periods of time when various markets will exceed that appreciation rate. But those tend to be transitory periods. And typically, there's a payback for those excesses, as well, in terms of flatter appreciation after that or downturns like we're seeing now.

CONAN: So, as opposed to the biggest and most important investment for the family, maybe houses should be regarded as something like a giant car or something that is a durable good that, eventually, you use up.

Mr. HUMPHRIES: That's right. I don't think that's a bad analogy. I mean, essentially, housing is a utility that you consume like electricity or, you know, like goods that you - you know, goods that you consume. You know, we consume housing as a utility. It's a place that's the shelter for us. And, you know, there are some examples where housing can be good investments. But over the - typically, you know, I guess most people should think of housing as utility, that is - it's typically a non-depreciating asset. So that's the good news. So it's not exactly like a car. It does tend to, you know, increase over time, at least track inflation, which cars would do the opposite. But people should be thinking a little bit more pragmatically about the fact that it's a place to live.

And I think you are seeing a change in how people think about that. They're approaching buy-versus-rent decision a bit more pragmatically. I think before, it was imbued with a little bit of the aura of the American dream, and it had a little bit of an aura around the buying decision. And I think now, people are approaching that with a little bit more pragmatism and actually, you know, whipping out the calculator now and trying to figure out, wow. If I'm maybe in this house for four or five years, I really want to know whether renting is better than buying. And I think that's probably a good thing for the American consumer.

CONAN: And there was an article yesterday in The New York Times that addressed a fading confidence in building wealth from investing in real estate, which says if the long term is grim, the short term is grimmer.

Mr. HUMPHRIES: That's right. Yeah. I mean, we're talking here about the historical appreciation rates getting back to a level of two to 4 percent, and how that's far below what people expect. But unfortunately, in the near term, we'll be lucky to even get back to that rate. Near term, we're expecting home values to continue to decline for the rest of this year and reach a bottom in the latter part of this year.

But when we hit bottom, we think that because of a variety of factors in the housing market right now, we're going to see below normal appreciation for the next three to five years, below normal being -normal being two to 4 percent. So we're going to see very little appreciation for the near term, while we work through the enormous backlog of foreclosures, a lot of negative equity, one in five home -single-family homeowners being in negative equity right now, and very high inventory levels of for-sale homes, right now, at 12 and a half months of inventory in the market.

So it's going to take us awhile. Essentially, that's the hangover after the party, which was the housing recession. We've had kind of car crash after the housing boom where we've had precipitous declines. And that's going to draw to a close now, but after that, we're going to have now the hangover, which is below-normal periods of appreciation. And while we work through this, the larger economic factor is facing the housing market.

CONAN: And when you talk about negative equity, that's what we refer to as houses being underwater, where you owe more than you mortgage.

Mr. HUMPHRIES: That's correct. And by our calculation, about 21.5 percent of single-family homeowners with mortgages are currently in that condition, which is exactly as you say. Their mortgage is worth more than their home, which really has some pretty deleterious effects on the housing market. One, it radically increases the foreclosure rates because households that face financial shocks of, you know, hour -reduction in hours or loss of jobs, typically, they'll be able to either tap equity on their house or sell their house to reduce their monthly payments. But in the presence of negative equity, they can't do that, and it leads to increased foreclosure rates. So it...

CONAN: If you sell your house, you're still going to owe money on it. You're not going to get any money out of it.

Mr. HUMPHRIES: Exactly. You have to bring money to closing.

CONAN: Yeah.

Mr. HUMPHRIES: It's really an almost un-American concept.

CONAN: We're talking with Stan Humphries, chief economist for the real estate site To emphasize his point, I think the existing home sales, the numbers we got today, plunged 27.2 percent in July. And that's obviously short-term, and obviously, it depends where you are -some places worse off than others, but nevertheless, those are not encouraging numbers. To what extent is your house your investment? 800-989-8255. Email us: Ned's on the line, calling from Santa Rosa, California.

NED (Caller): Hi, thanks for the time. There is a little loophole you can use financially to overcome some of these restrictions, and that is to refinance with an assumable loan. Now, back in the day, 20 years ago, assumable loans were quite common. You can get a private placement of an assumable loan. You might even have to pay only half of base - a base point higher for a mortgage. So what will happen is when you sell your home in the future, interest rates will most certainly be much higher than they are now. And you will get a - you will make a lot of money on your house because the person buying it will be buying your low-payment mortgage.

CONAN: And mortgage rates are...

NED: So I was wondering what your...

CONAN: historic close.

NED: ...guest thought about that.

CONAN: What do you think, Stan Humphries?

Mr. HUMPHRIES: Yeah. I think if you can get a mortgage product like that, that will be fantastic because you are, essentially, not only locking in the interest rate for yourself, but also for anyone who assumes the loan going forward. And I think it's a relatively rare mortgage product, precisely. And typically, it's priced a fair bit higher because they're having the price in the - their - the lenders' risk-to-interest-rate fluctuations, which right now that would be acutely sensitive to since we are at a historically low interest rate environment right now. And we've not seen mortgage rates this low since - for the past 40 years. So it's a good environment to be refinancing and locking your loans right now.

CONAN: Thanks for the call, Ned. Good luck.

NED: Thank you.

CONAN: Bye-bye. Here's an email from Mark: My wife and I currently rent. We want to buy. Our view is that we will get some of our housing costs back when we sell and return to her home country. And I guess, Mark, that depends where they are. It doesn't say. And it depends on how long it is before they plan to return to her home country.

Mr. HUMPHRIES: That's exactly right. And probably, the latter part -well, both are very important considerations. If you're in a housing market which has been, you know, being down substantially and you think it might be nearing, you know, bottom - so, for example, we've see nice stabilization of home values in California markets. You know, markets like Detroit and Phoenix and many parts of Florida are still seeing pretty high depreciation rates, but they've slowed somewhat. So doing it - where you live is actually a big factor in that.

But, of course, the time horizon which you're going to be in the house is probably even a bigger factor, because that's the time period over which you're going to have amortize the closing cost and commissions and other things for purchasing the house. So the shorter that period of time is, the more attractive renting looks versus buying.

CONAN: And as you look at that spreadsheet, if you can put print it out in your computer, if it's five or six years, maybe it's worth it. If it's less than that, maybe not?

Mr. HUMPHRIES: Yeah. Typically - I mean, right now, again, in most markets, we're not expecting, you know, a lot further declines. But when I say a lot further, some of these markets could see another 5 percent come off. But that's relatively good for some of these markets, which are down 30 to 50 percent. So that's what I mean by minor. But for someone purchasing a house and wanting to live in it in less than five years, 5 percent decline may not be a trivial number, particularly when you roll in the closing costs and commission fees, as well. So that's certainly something that we need to be aware of.

CONAN: We're talking about housing, the bleak picture again, with Stan Humphries, chief economist for the real estate site You're listening to TALK OF THE NATION, from NPR News.

Let's go next to Roger, Roger with us from Commerce, Michigan.

ROGER (Caller): Hey, there. I just want to comment that I've always viewed buying a home to be, in the long run, just cheaper than paying rent every month, paying off a mortgage. And I'm just one of those lucky ones that also happened to - well, I saved up for years, happened to be buying, well, just recently.

My other comment is is that for people who would be, like, underwater in their - as far as their mortgages go, would it be cheaper to continue paying their mortgages rather than paying rent? And I'll take my comment off the air.

CONAN: Okay. Thanks very much. Stan, what do you think?

Mr. HUMPHRIES: Well, in terms of the first question, he's exactly right. It sounds like, you know, the question was about the long-term ownership of homes. And that's definitely true, that the longer you're going to own a home, the more the buy decision versus rent looks attractive.

And that's certainly true going forward, as well. I mean, if you're going to be in the home for, you know, if you're staying in the home for, you know, longer than a five to 10-year period, if you're going to be in the home certainly for 15 to 20 years, then at that point, in most of these markets, buying is definitely more attractive than renting. So that's a very important point. And to the second point, I believe his question was regarding - I'm sorry.

CONAN: I sort of lost it, too. I've got - totally caught up in the answer to the first question. Anyway, let's go to Andy's email question: How much are local governments, who rely on property taxes, going to be affected a flattening of the appreciation curve? How much were they a driver of the bubble?

Mr. HUMPHRIES: So that's definitely have been a big factor, and particularly in California markets, where Prop 13 prevails, and where a lot of these municipalities locked in, you know, their municipal budgets around home prices that ended up declining - in some places 40, 50 percent - and now are seeing substantial repercussions in terms of municipal services.

So you've had entire municipalities like Vallejo, California, which have really had severe problems. And many other municipalities there are confronting similar problems, where they had predicated their budgets on higher land values and property values, and now that's going away.

And with Prop 13, it's important to remember in California that it can be, you know, the - I guess it's not the gift that keeps on giving, but rather the curse that keeps on giving, because once those homes have transacted, then they're locked in at very low price levels for - until the house sells again. So that can have long-term impacts for municipal budgets, as well.

CONAN: Let's go next to Tim, Tim with us from Cleveland.

TIM (Caller): Hello, yes. I've - I own my home outright, and I just see $180,000 sitting there, losing value, and also losing the capitalization costs that, you know, I had that money sitting in a super bond fund at three or 4 percent, you know, that's another five, 6,000 a year.

CONAN: So you own your house outright, and would like to buy it again?

TIM: I'd like to move the clock back 10 years and rethink the whole process, because if I could be renting and paying seven, eight, 900 a month and then have 200,000 sitting in a bond fund somewhere, that would - I think my lifestyle would be better off. I think owning a home at this point in my life is more of a lifestyle choice than it's - I need a place to live. And that's - could I have had just a, well, just a high a quality of life with less, would - the answer with my case would be yes.

CONAN: Stan Humphries?

Mr. HUMPHRIES: Well, I think that that - I mean, the important consideration there, it sounds like you are maybe second-guessing yourself for having not engaged in some market timing, which, you know, I guess that's - and that can be an attractive proposition if you're great at timing the market. Unfortunately, most people are not great at timing the market. But certainly, you know, if you had been able to sell at the height and then - I'm sorry - sell at the height and then lay up into a rental property and then buy again at the bottom, you would have forgone the depreciation of the asset that's occurred since then.

But that's that typically hard, and most people, since the housing is -it's a place they're living, they don't want to engage in that type of market timing like they would with stocks and bonds. But - and then going forward, I think, if you were to - it sounds like you're mainly second-guessing your decision in the past. Going forward, the fact that you own your house outright and that we're kind of near the end, I think, of the precipitous declines of home values, I would - and it sounds like you - you're intending to stay in your house, for, you know, a fairly long period of time in the future, then I would think that just staying pat right now is the best course action.

CONAN: Well, good luck, Tim. Appreciate it. And Stan, we have to ask you a question: Do you rent or do you buy?

Mr. HUMPHRIES: You know, I currently own. And it's an interesting question, because I have gone through my own spreadsheets extensively in the past few months. You know, Seattle - basically, the Northwest went through a housing recession about a year, a year and a half after the rest of the country. So we've entered the housing recession later. And so we're still seeing fairly large appreciation in the Northwest markets, and I'm in Seattle.

But I've certainly done my own, you know, musings with my wife about whether we should - you know, we like to move eventually in two or three years, and we're thinking, well, if we're going to move in two or three years, should we try to lay up in rental housing while the houses are depreciating here or not? And, of course, I approach that strictly from - as an economist, I pull up the spreadsheet and my wife approaches it from the perspective of a, you know, we are not packing up this house.

(Soundbite of laughter)

CONAN: I know who's going to win this one.

Mr. HUMPHRIES: Yes, and right now, I would like to say we're at a stalemate, but largely, I believe she's won.

CONAN: Stan Humphries, thanks for your time today. Good luck with that.

Mr. HUMPHRIES: Thank you.

CONAN: Stan Humphries, chief economist for the real estate site Tomorrow, Political Junkie Ken Rudin joins us. Primaries today in Florida, Vermont, Arizona and - there's one more. What one am I missing? Arizona, Florida, Alaska. And, of course, we'll be talking about the Palin factor. Join us for that.

It's the TALK OF THE NATION, from NPR News.

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