The real estate pundits are out and warning that you should buy before prices start to go up. From Irwin Kellner, chief economist for Marketwatch and Capital One Bank:
Housing could shift from a buyer’s market to a seller’s market before you know it.
Now don’t get me wrong. I am not saying that all is copacetic when it comes to housing. Far from it.
I would agree with those who say that it will take many months before balance is restored between supply and demand. There are simply too many homes for sale at asking prices that are still too high for housing to do a 180.
Nor am I expecting another housing bubble to form, not in this decade anyway.
All I would like to point out is that, in broad macro terms, the average house is no longer as overpriced as it once was. That being the case, it is no longer prudent to assume that home prices have to fall a lot more before they stabilize.
Here’s Kellner’s logic:
As of the April stats, the typical existing home cost 3.4 times estimated household incomes, while median new-home prices equaled almost 3.8 times family incomes.
These are down from the peak of 4.2 reached in the bubble year 2005, although they remain above the 2.8 figure that prevailed in the 1980s, when housing sold at a brisk pace.
But home prices don’t have to get down to 2.8 times incomes to kick-start the market. A bit over three times might do it.Remember, incomes are still rising, so home prices don’t have to fall as much as you think before buyers decide that they can once more afford the home of their dreams. Sooner or later, the fact that housing is more affordable will sink in. That’s when the market will turn.
Blanche Evans, editor of Realty Times takes the same tack:
The worst markets are starting to see signs of life. That means the window to get the best buys will soon close.
The California Association of Realtors most recent report notes that state-wide inventory is going down from 11 months on hand a year ago to nine months. That’s faster than the national average, folks, which has climbed to 11 months, according to the National Association of Realtors.
Even foreclosure-heavy Detroit is sporting better numbers — pending sales have increased 26 percent says RealComp II, a broker-owned MLS.
The reason sales are slowly turning around is that smart homebuyers recognize that prices will recover. They’d rather benefit from the next boom than see the current seller get it.
Think about it. When have you ever seen housing retest previous lows? This past year is the first in decades in which housing prices went lower. Typically, housing prices beat inflation by one or two percent
The 2007-2008 housing recession is an anomaly. You’ve seen housing prices retreat as far back as 2004 in some locales, but you don’t see them retreating to 2000.
Then Evans offers this strange logic:
With still near-record inventories, low interest rates and lower prices are making home ownership irresistible again.
And we all know what happens next. Lower inventories are invariably followed by higher prices.
Evans is wrong. Lower inventories are NOT invariably followed by higher prices- not when lower is only slightly lower than "still near-record" inventory highs. LOW inventory leads to higher prices, and we are a long way from that happening:
