Why home prices may never recover

By Mark Gimein, The Big Money

Two years away from the peak of the great housing bubble, the talk has turned to whether we've reached a bottom. And whenever there is talk of a bottom, there is the inevitable talk of recovery, the speculation about just how long -- five years? 10? -- it will take for us to get back to where we were.

Even at this point, the idea that there is simply no going back -- not for decades -- is still hard to stomach for Americans who have never seen or imagined a more or less permanent drop in value of housing.

It's time, however, to start thinking about the likelihood that even when the worst of the financial crisis is over, the downward trend in housing prices will persist.

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The belief that to own your home and your land is to assure your future is near universal.

It predates our times by many years -- it sent the homesteaders into the hard ground and dry plains of the West. And in the second half of the 20th century, the confidence that home ownership equaled security was consistently rewarded.

Thanks to the invaluable work of Yale economist Robert Shiller we know that since the First (yes, that's the first) World War, there have been two dramatic upticks in home values -- one in the 1940s and a second in the last 10 years.

The last sustained fall came close to 100 years ago.

Almost a century of experience has gone into reinforcing the conviction that even if the price of your home does not rise, at least it is not likely to fall for any length of time. Imagine the sense of economic security that came from that.

When it comes to real estate, I have almost always found myself in a minority among Americans. I was very suspicious of the run-up in home prices when it started. I now find myself equally skeptical that there will be a housing recovery of the sort people expect. Real estate has just never meant, for me, the kind of stability that it has meant for most of the country. The reason is the New York City neighborhood I grew up in.

It was called Jackson Heights, and it was a neighborhood particularly hard hit by the real estate collapse in New York that followed the 1987 stock market crash.

But, more unusually, the neighborhood's plan, architecture and history still bore the marks of the Depression years. It was never, as are some urban neighborhoods, stagnant or decaying. Through its history, it was vibrant (more languages are now concentrated in its one ZIP code than in any other in New York, and very possibly the world) and mainly middle class. Nonetheless, it resonated with cautionary lessons about relying on the permanence of real estate wealth.

Continued: Signs of the times

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