But, oh, there have been arid spots (actually, deserts) in the real estate topography. They're sobering -- as if anybody who has been trying to sell his house for months needs more sobering.
PMI Group Inc., a mortgage-insurance firm in Walnut Creek, Calif., recently revisited the data on three cities that represented the worst of such boom-to-bust cycles in the last 25 years. It was ugly.
Its new report took a microeconomic look at Los Angeles and Boston in the 1990s and Houston in the 1980s. In each, many homeowners trying to make a buck -- not a killing, mind you, just a profit -- had to settle in for a long wait.
In the case of Los Angeles and Boston, the wait was as long as a decade. For Houston, nearly 15 years.
Los Angeles, for example, was seeing double-digit price run-ups in its housing for years until it peaked in 1990. At that point, a recession in the defense and technology industries soured the job market. And if you bought at that peak in late 1990, when prices began to drop, drop, drop, you were unlikely to recoup your investment until late in 2000, according to PMI's review of federal housing data.
The story in Boston was similar: In late 1989, technology jobs dried up and the market peaked. If you bought at that moment -- isn't timing everything? -- you were unlikely to break even until early 1998, PMI said.
Houston's "oil patch" bust, beginning in 1983, is probably the most storied saga in the market. If bought then, at the worst possible moment, you were likely to have to wait 14.5 years to recoup, according to the PMI report.
Are we there yet?
Probably not, said PMI economist LaVaughn Henry. "We don't predict how far things can go," he said. "But [those three busts] are extremes, a major economic shock to a major metropolitan market. If you look at the majority of markets, the time to recovery is much shorter."
Patience is still needed, though, he said. "The housing boom wasn't an overnight phenomenon. We can trace it back to early 2000, when the Federal Reserve started cutting interest rates, which so stimulated the housing market that everybody jumped in and demand for homes skyrocketed.
"At the end of the day, it took five years to get here," he said. "It probably won't take that long to get out," largely because employment hasn't plummeted.
"This isn't a correction of small magnitude," Henry said. "It's a large correction, but a workable correction. It will take time to work through the process."
Taxing times
The Internal Revenue Service, in its own cuddly way, has created a section on its Web site to explain the tax consequences for people who have lost their homes to foreclosure.
Some homeowners can work out arrangements with their lenders to forgive some of the debt; in some cases, that's a better financial deal for the lender than going through the protracted and expensive process of foreclosure.
But what the lender forgiveth, the IRS taketh away. As the tax man himself explains it on the site in a very simplified example: Say you borrowed $10,000 and defaulted on the loan after paying back $2,000. If the lender cannot collect the remaining debt from you, there is a cancellation of debt of $8,000.
That's the good news -- if you're the borrower -- right? Well, no. The IRS generally regards that $8,000 as your taxable income.
But there are some exceptions, which the IRS explains on the new section of its site; it also includes a worksheet for computing the income that must be reported in the foreclosure. Be forewarned, however, that it has the usual "subtract line 5 from line 4. If less than zero, enter zero" language.
Further, the specific URL for the foreclosure section is so complex as to guarantee that it will be mistyped -- and then you'll call me and complain. So if you want to know more, you're probably best served by going to http://www.irs.gov and in the search feature type in: "Questions and Answers on Home Foreclosure and Debt Cancellation."
The whole thing may be rendered moot, however. The U.S. House of Representatives recently passed a measure to prevent the IRS from taxing any of the forgiven debt. The proposed law would be retroactive to Jan. 1; it now moves to the Senate for consideration.
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source: chicagotribune.com
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