“The Changing Prospects for Building Home Equity,”[PDF] tries to predict where today’s first-time buyers in the 100 biggest metropolitan areas may actually have less home equity by 2012 as a result of continued price declines. The verdict was that buyers in 33 of the markets could see a decline by 2012, including potential six-figure drops on an average home in the New York City, Los Angeles, San Francisco and Seattle metropolitan areas.
It may be, actually, a good time to buy a house. I think yesterday, I realized that hyperinflationary policies -- where you lose a lot of money by not lending or investing -- are a tack the Obama Administration may very well try to get the credit markets unfrozen.
Say you buy a $500K house that has some platonic, abstract value of $250K in a universe where housing prices are tied to rents and incomes. After 5 years of 15 % inflation, you haven't lost anything -- you have a $500K house again. If you have a 15 year morgage, ten years later you own a $2M house. While it seems like you've made nothing in real terms, if you've only been paying 4.5% on this, you're golden.
Update: I also wanted to comment on this in the column itself, [A]s it does with the stock market, the [bottom to the housing market] will probably arrive when everyone is feeling the most pessimistic. I hear this sort of thing now and then. Isn't that kind of stupid? Not only is pessimism harder to measure than even prices, but you can always get more pessimistic -- prices have a soft bottom at 0 (you could pay people to take stuff away, which is why I don't say 'hard bottom'), but I don't think pessimism is even strictly a scalar quantity. The statement is an implicit suggestion that you replace your inability to predict the shape of a hard-to-measure trend with your inability to predict the shape of a harder-to-measure-and-hard-even-to-define trend. I don't see what you gain.