1. 2003-2006 U.S. Housing Bubble Effect: Forecasting Future Home Values March 14, 2007 Randall Bostick, MBA randall.bostick@gmail.com Download forecast from http://housing.wikispaces.com/space/filelisthttp://housing.wikispaces.com/space/filelist

2. Purpose To positively effect the expectations of those with a stake in the housing market. To encourage discussion about the largest financial investment for many families. * Disclaimer: I do not claim to be an expert in forecasting the housing market. Do your research. Do not rely solely on this information to gain perspective.

3. Historical Appreciation rates Record appreciation is in the decline. Next: home values may fall. How much?

4. How much will the home be worth? Home values will likely revert back to the market price (“revert value”) that they would have been if there had there been no bubble. –Where building exceeded/exceeds population growth (too much supply for the demand), values may dip below the revert value. Note: Market reports based on sales figures will not reflect the true loss of home value. Most owners will simply chose not to sell below the original purchase price. Instead, they will hold on and wait until the property appreciates again.

5. Revert Value To estimate the “revert value” and future value requires: –Purchase price and year of house. –Rate of appreciation during the bubble We’ll define the bubble years as being from 2003-2006. –Rate of appreciation post-bubble. Assume it will be the same as appreciation from 2000-2002. –Historical appreciation data may be found at www.ofheo.gov. www.ofheo.gov

6. Revert Value: Example House: Purchased for $100,000 in 2002 Appreciation: Norfolk, VA area –2000-2002 appreciation = 6% –2003-2006 appreciation = 17% Appreciation data from www.ofheo.govwww.ofheo.gov

7. Revert Value: Example

8. Revert Value: Example Explained 2002: House purchased for $100,000 2002-2006: House market value rises rapidly to the peak of $185K. Then, the bubble bursts. By end of 2007, the market corrects and the house market value decreases to $118K –$18K above the 2002 value. –However, $67K below the 2006 peak. By end of 2008, the market has resumed the pre-bubble appreciation trend. –It may take some time for the home to again equal the 2006 peak value of $185K. The estimate shows 7 or 8 years.

9. Revert Value Estimator Open Spreadsheet, (http://housing.wikispaces.com/space/filelist)http://housing.wikispaces.com/space/filelist Enter values highlighted in yellow. Graph will automatically adjust

10. Considerations If you bought during the bubble –To avoid loss, hold property. It will likely take AT LEAST one to eight years for it to appreciate above the bubble market price. –If you have an interest only loan: If able, get a fixed rate loan for 8-10 years. –I predict interest rates will inevitably rise soon when mortgage investors demand a greater return for greater perceived risk. If unable to get a fixed rate, project and budget for your future rising payments. If unable to meet payments, bankruptcy will result. –If you are in a serious financial bind, talk with a financial advisor. Have faith, have unity, and you will get you through it.