Home values will rebound

Merrill Lynch's Jan. 23 report predicting a free-fall in home prices was yet another panic analysis based on faulty assumptions. While home values are adjusting, flattening out or even declining in some markets during the current economic downturn, the long-term outlook for home values remains positive.

Consider the facts:

Except for about 30-or-so high-flying metro markets where home values doubled in four or five years, the correction now underway in home values has been relatively modest for the vast majority of U.S. markets.

And home values can be expected to stabilize and then edge upward again with the next recovery. To argue that home values will continue to decline and will never recover, someone has to make a convincing argument that it will cost less to build a new home three years from now than it does today.

That's not going to happen. The cost of land will rebound as the recovery gets underway, particularly in high-growth urban markets where there is a very tight supply of land available for development. And the hard costs of building — labor and materials — can also be expected to continue to rise.

There is no monolithic housing market. Like politics, all housing markets are local in character and driven by their own unique set of supply and demand pressures. That makes national forecasts on home values, such as those issued by Merrill Lynch and others, irrelevant. People want to know what's happening in their own market, and factors affecting home values vary considerably from one market to the next.

America is on a growth path, with the projected growth in population and households being formed year-after-year, requiring about 1.8 million new housing units per year over the next 10 years just to meet demand. Once the current inventory of unsold units is cleared out, the pace of home sales and new housing construction will return to more normal levels.

The Flathead Building Association, along with the Montana Building Industry Association, is so committed to this message that we will launch a "Buy Now" campaign this spring. Please contact the FBA at 752-2422 for more information.

Robert Helder is the president of the Flathead Building Association.