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Ten Year Forecast For The U.S. Housing Market: Strong

Written by Henry Savage on Wednesday, 02 June 2004 7:00 pm
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A group of real estate industry analysts released their prediction of the housing market over the next 10 years: no bursting bubble, continued high demand and continued rising prices.

The report, released by the Homeownership Alliance, an association made up of 18 national housing organizations, made some specific predictions:

  • Home prices will increase by an average of 5 percent per year through 2013;

  • The homeownership rate will grow to more than 72 percent from its current level of 68 percent;

  • Total home sales will remain on par with the current level of about two million units per year.

The report cited population growth and immigration as a result of such a rosy outlook. The possibility of higher interest rates was not considered in the study because housing growth's major factor is population growth.

Interesting. I wrote a column a few weeks ago about the out-of-control Washington, D.C. area real estate market and it appears these guys think I'm dead wrong. In the column, I cited true examples to illustrate an irrational market:

  • 41 legitimate offers on a home in the first morning of listing;

  • A ratified contract $100,000 over asking price on the first day of listing;

  • More than 30 people camping out on the streets in order to secure a contract in a new townhouse development.

After a second look at the Homeownership Alliance's report, I found myself agreeing with most of their conclusions. The study forecasts property values nationwide increasing by a mere 5 percent per year over 10 years. Ten years is a long time and history has shown that real estate, over the long term, is invariably a good investment.

Five percent per year over 10 years is hardly a bold prediction. However, real estate has proven to appreciate in a very uneven manner. We might be up 12 percent in 2008, but we might be down 3 percent in 2005 and 2006.

This is where the problem can arise. It's easy to predict that real estate will go up on average, by 5 percent per year over the next 10 years. It's difficult to predict which years, over the 10-year period will be up years and which will be down years. So I'm going to stick to my prediction that the Washington Metro Area real estate values are positioned to flatten out or even drop in some areas over the next couple of years, not just because interest rates have risen, but because the frenetic pace of the last couple of years cannot be sustained. Stay tuned.

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