When will house values rise back to equal what is owed?

Real Estate Agent with Keller Williams Realty Louisville East (502) 664-7827

Millions of homes are “underwater” or “upside down”, meaning the debt is higher than the value of the property.

I am often asked variations of the question “When will home values rise back to equal what is owed?”

I never want to sound negative, but the answer is measured in years.

Here’s a simple math problem to make the point

If you have $100.00 and you lose 50% of it, you now have $50.00 left.

If your new balance of $50.00 now goes back up by 50% (fifty percent), it is only worth $75.00.

Because 50% of $100.00 on the way down is $50.00. But 50% of the remaining $50.00 on the way up is only $25.00.

So, if the value goes DOWN 50%, it has to GO UP 100% to equal what is was.

Another way to put it is: If the value of something is slashed in half (by 50%), it then has to DOUBLE (go up by 100%) to equal its original value.

Now back to real estate values

If your house value declined 30% in the last number of years, it has to go up much more than 30% to equal what is was worth. A $400,000 house that went down in value 30% is worth $280,000. If $280,000 goes up by 30% it's still only worth $364,000, which is $36,000 short of the original $400,000.

If your house value went down 30% and the market STARTS appreciating 5% per year, how many years will it take to climb up to the original 100% of value? Keep in mind there is some compound appreciation factors which shortens a recovery, but still, the answer is many years.

And the recovery hasn't started yet.

We need to remember that as of today's writing in May 2011 the market hasn’t even bottomed out yet, and has not yet started the theoretical 5% annual appreciation climb.

If your loan balance was close to market value five years ago, chances are you are underwater today.

So what to do if you need to sell now? A Short Sale is a viable option.

Since life goes on, there are many natural reasons for people to move or sell. Typical reasons are

  • Job relocation
  • Divorce
  • Job loss
  • Illness or injury
  • Distance to work and schools with high gas prices

In an underwater situation, the sellers may become candidates for a short sale in order to avoid foreclosure. If you need to sell your underwater house in Louisville, KY or surrounding counties, please call me at (502) 664-7827. Most importantly, I will listen to you and learn the particulars of your situation. We will then discuss a strategy to best help you.

Posted by



Dave Halpern, Realtor

The Dave Halpern Real Estate Group

Keller Williams Realty Louisville East

Website David.DavidHalpernRealtor.com

(502) 664-7827



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Comments (45)

Pamela Seley
West Coast Realty Division - Murrieta, CA
Residential Real Estate Agent serving SW RivCo CA

Dave, excellent explanation. I agree that we haven't bottomed out yet. I agree to as time goes on we will see more walk aways and short sales because people need to move for various reasons. Homeowners who did nothing wrong are prisoners of their own homes!

May 15, 2011 05:27 PM
Evelyn Kennedy
Alain Pinel Realtors - Alameda, CA
Alameda, Real Estate, Alameda, CA


I'm going to use your example the next time I talk to sellers who are on the fence about a short sale.  They may have a clearer picture of their situation.  Thanks for sharing.

May 15, 2011 05:37 PM
Ronald DiLalla
Century 21 Discovery DRE 01813824 - Anaheim, CA
No. Orange Cty Real Estate

Dave,  Great Post and thanks for sharing.  Will utilize your example when it comes up in a future short sale listing..thanks again.

May 15, 2011 06:18 PM
Gabe Sanders
Real Estate of Florida specializing in Martin County Residential Homes, Condos and Land Sales - Stuart, FL
Stuart Florida Real Estate

Unfortunately many are waiting for that miracle to happen, but getting themselves more and more into debt as they wait for the holy grail of the market rebound.

May 15, 2011 11:56 PM
Fernando Herboso - Broker for Maxus Realty Group
Maxus Realty Group - Broker 301-246-0001 - Gaithersburg, MD
301-246-0001 Serving Maryland, DC and Northern VA

Dave, when I wrote AdiosLender dot com, I gave an example and calculated the time it will take to be EVEN again.

In my sample  it took 17 years assuming an annual equity growth of 3%

That is a lifetime for some folks. . 

May 16, 2011 12:38 AM
Missy Caulk
Missy Caulk TEAM - Ann Arbor, MI
Savvy Realtor - Ann Arbor Real Estate

Excellent explanation as I am asked this all the time. We are stable in Ann Arbor Area but prices have not goine up yet.

We are just holding steady, and they must start rising before we can see how long.

For people wanting to wait for that "when will I get back to what the market was in 2006-2007, it could be awhile.

May 16, 2011 01:23 AM
Howard and Susan Meyers
The Hudson Company Winnetka and North Shore - Winnetka, IL

Very interesting perspective Dave. 

Many homeowners are underwater on their mortgages (approximately 46% in the Chicago market according to the most recent Zillow poll) and are experiencing genuine hardship, but are in a world of denial.  Unfortunately, many of these people will wake up to find foreclosure docs in their mailbox if they don't attempt to take action.

May 16, 2011 01:53 AM
Gita Bantwal
RE/MAX Centre Realtors - Warwick, PA
REALTOR,ABR,CRS,SRES,GRI - Bucks County & Philadel

This is useful information. I hope prices will start getting better.

May 16, 2011 02:02 AM
Bryan Robertson
Los Altos, CA

This is a great outline of the reality of market recovery.  The problem is that the recovery has started, just not in all geographies.  It's hard to tell someone in Kentucky, where home prices might recover at 2%/yr, to wait 25 years to recover while others in California or New York are gaining 10-15%/yr and back to full value in 5 years.  Hopefully over the next 3-5 years, we see more appreciation because I think getting back more equity will be key to the long-term health of the economy.

May 16, 2011 02:18 AM
Rob Spinosa
Guaranteed Rate, Marin County, CA - San Anselmo, CA
SVP of Mortgage Lending, Marin County

"For every complicated problem, there is a simple solution, and it is wrong."  ~H.L. Mencken

This is a great post and I hear you loud and clear about the mathematical road to recovery.  However, the problem with it is that it assumes that the path will follow a logical progression, which it most certainly will not.  If we've learned anything over the last 10 years, that's one of the lessons.

More than likely, a housing recovery will include years of 10% (or greater) appreciation, and years of 1% appreciation.  And supply/demand equations as well as other economic forces will drive the values of homes.  If we look at the price of gold, for example, it's not following a mathematical model.  It's following the flow of money as investors make plays that protect their interests and profits. 

Housing will work similarly.  I remain optimistic about real estate in California.  We forget all too soon those 2006'ish feelings that nothing could be more valuable than a beautiful home in a beautiful place --- this sentiment having been replaced by the 2011'ish "this home will never be worth $x again and so I'd rather be renting."  But it's precisely these strong emotions that play into the economics of boom and bust, and we are in just one phase of the cycle.  A cycle not governed primarily by math and logic.



May 16, 2011 03:28 AM
Valerie Baker
Exit Real Estate Professionals - Spokane, WA
Spokane Realtor

So inspiring for a Monday morning! I don't have a lot of time at the moment to really think through some of the concerns I have with this approach but there are a few things that are popping into my mind.  I am thinking this may lead to another blog . . . thanks for the food for thought!

May 16, 2011 04:17 AM
Dave Halpern
Keller Williams Realty Louisville East (502) 664-7827 - Louisville, KY
Louisville Short Sale Expert

Valerie #37 - All opinions are welcome. Please come back to post a link to your spin off post.

May 16, 2011 04:45 AM
Dave Halpern
Keller Williams Realty Louisville East (502) 664-7827 - Louisville, KY
Louisville Short Sale Expert

Rob #36 - The recovery model and the restoration of 2005 values can be quite complex. The models would have to allow for thousands of permutations. My post represents the simple fact that we won't be out of the woods in the immediate future, let's say by the end of the year.

Also, what is the definition of "housing recovery" anyway? Stabilization of the free fall? Resumption of what used to be the "normal" rate of appreciation? Restoration of 2005 values? Restoration of 2005 values PLUS the lost appreciation that would have accrued during the slump?

I would value any spin off posts you would write on the topic. Please come back to post links.

May 16, 2011 04:58 AM
Cory Barbee
San Diego, CA
Broker (760) 563-4022

Awesome post and I hope many people out there have the opportunity to read this.

May 16, 2011 05:27 AM
Sandy Acevedo
951-290-8588 - Chino Hills, CA
RE/MAX Masters, Inland Empire Homes for Sale

It really brings into focus what we have to look forward to. I never thought of it in this way. Thanks.

May 16, 2011 06:21 AM
Greg Nino
RE/MAX Compass, formerly RE/MAX WHP - Houston, TX
Houston, Texas

Excellent post and interesting that "divorce" is number two on your list. Great way of putting things.

May 16, 2011 07:04 AM
Adam Mallory
eBroker Real Estate 619-566-ADAM - San Diego, CA
Broker, ABR, e-Pro

You asked the million dollar question!  Thanks for the simple math equations.  These are great ways to explain it to Sellers.

May 16, 2011 08:37 AM
Goran Utvic
606 Homes LLC | Chicagoland Brokers Inc, Chicago IL 60656 - Chicago, IL
We Buy & Sell Chicago Houses Fast

Dave - Great post. Any homeowner with 20% or more difference in loan to value really should consider a short sale if they are experiencing a hardship.

May 16, 2011 10:51 AM
Lyn Sims
RE/MAX Suburban - Schaumburg, IL
Schaumburg Real Estate

Good explanations here.

May 16, 2011 12:08 PM
Dave Halpern
Keller Williams Realty Louisville East (502) 664-7827 - Louisville, KY
Louisville Short Sale Expert

Thanks everyone for your comments! I will respond in greater detail tomorrow.

It seems that this post may have stirred up some spin off future posts by some of the commentors. I would love to read your take on the topic.


May 16, 2011 04:59 PM

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