It’s the first week of a new year, a time to think about what’s in store, what will improve and what may decline in the housing economy. One figure we’ve seen gain a lot of attention over the last few years is a quantified total home value loss in the U.S. It occurred to me that this figure is actually pretty dangerous.
Just before the holidays, Zillow released a report estimating that U.S. homes were set to lose nearly $700 billion in value in 2011. That’s a mighty scary number when screaming at you in a headline. But the truth is that it’s hypothetical.
What does a $700 billion loss in home values really mean? Well, nothing to the average homeowner who’s not looking to sell. And to those who are looking to sell in 2012? It’s not great news, but it does deserve some context before we all freak out.
The positive spin in the Zillow report was that the total anticipated loss in home value in 2011 is actually 35% less than the $1.1 trillion Zillow found lost in 2010. And the total loss in value figure has shrunk each year over the last four years. So the rate of home value loss is slowing – a great sign.
The reality, though – and why I assert that this is a number that shouldn’t scare us – is that home values are much different than home sale prices. A home sale price, as reported regularly by the National Association of Realtors, reflects the value a buyer paid for a home that recently sold. But the home value loss reported by Zillow comes from some fancy math that averages the value lost in total on all U.S. homes if they were sold in current market conditions.
If you’re not looking to sell or refinance, then you don’t really need to fret much about the loss of your home’s value. Markets change over time and my advice to those owners who may be getting stomach ulcers thinking about the loss in value in their area over the last few years is to not worry about it right now. If you don’t have to sell, then don’t sell. By the time you do need to sell, you’re likely facing an entirely different market out there.
Buying conditions will continue to be good for many buyers in 2012: the amazingly low cost of borrowing, relatively large selection of inventory in many markets, and slowly improving U.S. economy will keep a stream of buyers interested.
I don’t expect a miraculous recovery in real estate on a national level this year, but I do think that a gloomy number like a $700 billion loss in total home value does a great disservice to describe what is really happening in the markets we serve. Things have improved in 2011, which is what we all expected. We’re not in a boom by any means and no one’s saying that. But we’re not coming off the worst year by far. Improvement is the name of the game. It is getting better, folks!