Do you think home prices will go any lower than their current average before a sustained recovery?
- Yes (61%, 120 Votes)
- No (39%, 76 Votes)
Total Voters: 196
Optimists everywhere have been abuzz, claiming the housing industry is showing marked signs of recovery. It’s okay to focus on the positive, but we’re not out of the woods yet, according to Washington Post’s business columnist Barry Ritholtz.
Prices must stabilize before a recovery is reached, and that has yet to occur. Unless something drastic occurs, shadow inventory and negative equity remain factors in light of massive delinquencies in mortgages, and still threaten to issue a few punches to multiple listing service (MLS) inventory.
The National Association of Realtors (NAR) paints a rosy picture with their Home Affordability Index, which assumes homes are always affordable and then goes on to inform buyers just how affordable homes are.
In reality, “affordability” is based on how much a potential buyer can pay— his buyer purchasing power by way of a mortgage based on 31% of his monthly income for amortized payments — not on the current pricing of homes. Personal saving rates are headed down again, and unemployment is not ending anytime soon, both interfering with homeownership.
While interest rates are down (a good thing), it is still difficult for the average person to qualify at historically low, advertised interest rates, to finance the purchase of a home at a price also near historical lows considering inflation and prices just 10 – 15 years ago.
Even if many employed potential buyers cannot qualify to purchase a home, at least prices have stopped dropping for underwater homeowners, right? In fact, prices continue to fall all over the nation. With strict requirements for government intervention programs to help underwater homeowners refinance, many homeowners will see no merit in continuing the waiting game as they continue to toss away their savings into the black hole assets their homes have become. Welcome, strategic defaults.
Low prices are here for the long haul, decreasing (up to 10%) until they reach the level where buyers will again actually participate. Real estate is in a world of demand, and demand is sorely lacking for ownership, but not renting.
first tuesday take: first tuesday does not predict a 10% further drop in real estate prices in California, beyond experiencing the continued bumpy plateau period of varying low prices until 2016; rising, then slipping, then rising again as demand for housing sorts out whether to rent or own over the interim years. Only then will housing prices begin to see a sustainable rise, but only at the rate of consumer inflation, around 2% per annum. But in many respects, this national analysis rings true.
We offer this reality check to focus you on the likelihood of sales volume and pricing, to help reinforce your thinking – it’s just a reminder that there are still several years of positioning in this market before the homebuyer recovery truly begins. Employment is slowly, steadily improving and its recover leads the demand for housing by homebuyers. Even then do not expect a return to prices as they were in the housing bubble of 2002-2007. Further, all real estate is local, and the earnings agents receive will vary based on the home tier they service.
It is a great time for some to buy, but make sure your reasons for saying so are backed by data produced by your local market, not the national market, as are most news reports. Otherwise, you’ll just be susceptible to the same herd mentality which landed us in the housing bubble.
Here’s some help with the data gathering:
Re: House prices are down, mortgage rates are low, but is the real estate market ready to rebound? from the Washington Post