by Carlos Atherton

Although US prices increased by 56% in five years to the market peak of the third quarter of 2005, the price-to-income and price-to-rent ratios remain lower here than they are in other industrialized countries.

In short, if you bought a home in 1995 and had it appraised this year, you would discover that your home’s value had at least doubled, if not tripled. By the same token, if you bought the same home in 1990, your gain would have been smaller, because the market prices were over inflated back then.

According to the Office of Federal Housing Enterprise Oversight, prices were still up 10% year-on-year in the second quarter of 2005, although the rate of growth slowed to only 1.2% during the three months.

Housing markets vary in the type of loans people use to buy houses, the level of home ownership, the ability to borrow against the value of one's home, and the size of the residential construction sector.

There is still a lot of demand for housing in the US because of a strong labor market, favorable demographics, and net immigration. The Hispanic market has become a large market, because its buying power, economical lifestyle, pride of home ownership, and strong family values allow Hispanics to share a home, while they all work together to grow and save for their next investment home.

A sudden slowdown in the US housing market has sent analysts searching for clues as to what might happen next. Will America's spectacular residential property boom end in a "soft landing" for house prices and its economy as a whole, or are there signs of a brutal hard landing?

Certainly, the US house price boom was part of a great wave of house-price inflation that swept unevenly around advanced economies beginning in the mid-1990s. In most of the hot markets, house-price growth has peaked and since then has declined.

Overall, home-price inflation in the US may slow to near zero and remain there for some time but will probably not turn negative. Historically in the US there has not been a year of house-price declines across the US since World War II.

House prices in the city have increased by only 8% in the past three years, compared with 37% for the whole US, according to the National Association of Realtors. Instead, the number of repossessions may reflect economic weakness.

Many property experts look back at the past few years as a crazy period for lending. We have had exotic loan products that qualify almost anyone, including loans such as Interest Only, ARMs, Pay Option, and many others introduced over the last few years to markets that were uninformed and to markets for which the loans were not intended. Rising home prices coupled with lower interest rates encouraged people–including many who were afraid to buy before–to take on high debt to buy a home.

What can we learn from home-buying market over the last ten years?

The benefits of homeownership are quite considerable, but it is not a cure-all for all our problems. It can create a lot of instability if you go into the process uneducated and uninformed. So should you have bought ten years ago? Did you miss out? Well, ten years from now, let’s hope not. Welcome home!

Carlos Atherton, Windsor, Connecticut, branch manager of the Andy Ross Group.
He can be reached at CAtherton@AndyRossGroup.com (860) 683-4144 Ext 19.