I was watching ‘World News with Charles Gibson’ earlier this week, which featured an interesting segment that discussed current home prices and examined where values will likely go.
The best-case scenario, of course, is that prices will flatten. In the worst instances, home values will plummet. Regardless of which reality takes shape, today's housing market is most interesting when perceived in historical context.
The ‘World News’ segment sought to do just that. Unless you have been living in a cave for the last six months, the capital markets crisis and tumbling home values are not news. We are all aware that housing prices climbed higher and higher – to an unprecedented level – and are now positioned to crash.
What's less known – or at least largely ignored – is that peaks and troughs have been apparent in the U.S. housing market for more than a centuryâ�¦and no one had a problem with that. Homes were homes: a roof overhead and a place to raise a family. A home was not perceived as an asset with potential for immediate return on investment.
Charles Gibson reported that, during the period spanning from roughly the 1920s to the late 1950s, a homeowner had to wait 40 years to simply break even on an initial purchase. Maybe Americans were more patient during that era. But the point is that the housing market was volatile back then, and it didn't matter. As Gibson said, Americans were ‘OK’ with a home just being a home.
Today, Americans are not OK with this concept. At all. Homes-as-cash-cows is the dominant perception, and it's going to take time for market realities to settle atop the nation's collective conscience.
Once these realities take hold, Americans will begin doing their part to repair the housing and credit markets – listing their homes at reasonable values, buying them in similar due course and accepting the fact that free money has dried up.
How much time it will take is anyone's guess. But I submit that it won't be long. Whether we want to admit it or not, Americans have very short memories. We'll come to terms with shallow levels of home equity and find other avenues for instant gratification.
