Can Americans cope with a 10 to 15 year bear market in real estate? On this front I have good news, and bad news.
The bad news is that we are likely to face at least a 10 year bear market in real estate thanks to a lost decade in household income and the continued erosion of the middle class. Home prices can only reflect the underlying income of households paying the mortgage. Clearly with record foreclosures many cannot accomplish this financial Herculean task.
The good news is we are already 5 years into this correction (so either we are half way or one third closer to a bottom). For the United States this is a new experience because we have never seen an annual drop in home prices on a nationwide basis outside of the current crisis. People point to the Federal Reserve as the knight in bailout armor for housing but look how far that has gotten us in the four years since the crisis started.
It is safe to say that home prices will face a 10 to 15 year bear market so let us examine the details carefully.