Depending on your views (optimistic vs. pessimistic) of the housing market, you can probably make a pro or con argument on the future direction of home pricing based upon the following 10 year chart. (aka – the Bubble Decade).
Personally, I’m in the glass half empty camp, and like many, I think that nationwide real estate sales prices will continue to decline slowly over time. Call it deleveraging, deflation, or simply a return to common sense, home prices simply can’t remain at elevated (artificially inflated via the credit bubble) prices forever unless banks re-open their vaults to those with subprime credit scores. Which, they’re not doing and doesn’t appear they will anytime in the near future.
This argument is highly dependent upon your geographic location since the strength of local economics vary greatly across the U.S. (median income vs. median home price), however, on a nationwide level, it’s not unreasonable to suggest we’ll slowly return to baseline or pre-real estate bubble levels.
[click image to enlarge]
Image source: Steve Barry for The Big Picture.
Naturally, a “return to baseline” or a “return to historical trendline” argument means further pain, and maybe even a few more futile attempts by the Federal Government to prop up housing prices and cause as much economic pain as possible (the slow Band Aid pull), but when you have a real estate bubble spike this severe, it’s only natural to have a reversion to the mean.