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Posted: 6:00 a.m. Tuesday, Jan. 29, 2013

Home value appreciation back to historic levels

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By Clark Howard


The housing recovery that we saw stirrings of in the fall of last year is clearly under way.

Housing is set to return to the "get rich slow" prospect it has always been since before the real estate bubble and bust.

Historically, homes appreciated at the rate of inflation plus 1 or 2 percent every year. That's likely to be the pattern going forward.

Owning a house will be great idea if you plan to stay put, except in markets like New York and San Francisco where it makes more sense to rent.

Owning gives you a fixed price for housing, a sense of permanence, and a connection to a neighborhood. Houses are a solid, fundamental thing to have for the two-thirds of us who will be  homeowners if it's at the right time of our lives.

Forget about thinking of real estate as winning the lottery. No more houses appreciating at 20% per year!

In the midst of all this, there has been a push to have Fannie Mae and Freddie Mac write down the balances on mortgages for those in distress. That is not going to happen.

The issue of writing down balances has been controversial because of the moral hazard question. How can people who pay their mortgage every month get no such deal when those who don't pay get the deal?!

But if you leave ethics out of it, write-downs would likely save taxpayer money in the short term. But in the long term, there is a clear ethical signal you send to people that you can get in trouble and not take it seriously.

Yet here's the ironic part: What are known as cramdowns or workouts are common in commercial real estate. Those are basically the same thing as a mortgage balance write-down for a homeowner. Unfortunately, there's no easy equivalent for residential real estate because of the sheer number of households we're talking about.

So there will be no offer coming from the government marking down loan balances. Though you may see some offers from banks themselves.

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