The housing market has changed dramatically in the bubble markets over past year and a half. Back in the summer of 2005 bidding wars were common and inventory was very low in the bubble markets across the USA. Those days are a sweet memory to the legions of stuck flippers.Today, a new reality faces both buyers and sellers. Its the Inventory Stupid! Inventory has increased dramatically in most bubble markets in the last year and a half. In Phoenix, inventory rose from 10,748 on 7/20/05 to 51,998 on 12/10/06 according ZipRealty and Bubble Markets Tracking Inventory. The inventory of houses for sale in Massachusetts has "now risen for 18 consecutive months" (Warren Group).
At the same time the number of housing units sold has fallen dramatically in the bubble markets compare with a year ago. The number of housing units sold in Northern Virginia (Washington, DC suburbs) has fallen - 23.6% compared to November 2005.
Some real estate agents are claiming that is now a 'buyer's market' due to the increased inventory, lack of bidding wars and the small reductions in prices. Blanche Evans , Editor of Realty Times thinks it is a good time to buy. “You can get a better price on a better home that will pay off when the slump ends.”
On the front page of the National Association of Home Builders (NAHB) website they write 'It's a great time to buy.' and 'making today's economic environment the perfect one in which to buy a home.'
So is it a good time to buy in the bubble markets?
In many bubble markets, the peak price was reached late summer 2005. Real prices will continue to decline in the bubble markets for many more years. Prices declines in the bubble markets are very likely to vary between 20% - 65 in real dollars (inflation adjusted) from peak to bottom (it may take up to 8 years). Most of the real dollar price decline will occur in the first 3 years of the housing bust. Indeed, the huge price appreciation that occurred in the bubble markets over the past 5 years or so was a speculative episode.
Just as importantly, monthly rents are generally cheap compared to buying in the bubble markets. Buying in the bubble markets generally costs 1.25 to 2.5 times the cost of renting ( for a similar property; assuming 30yr fixed, solid credit, property taxes, and typical interest rate tax deduction). Each month hundreds if not thousands of dollars can be saved and invested if one chooses to rent as opposed to owning.
Buying now in a bubble market does not make financial sense. As the housing inventory continues to rise and prices decline there will be lots of buying opportunities in the future. Additionally, an economic recession in very likely to occur in the US within the next 7 months. If you earn a reasonable income it is an absolute fallacy that you need to "Buy now or be priced out forever." This is not a small temporary 3 months dip like Mr. Lereah suggested. In the bubble markets, this is a multiyear housing market bust. In the Bubble Markets, renting and waiting is fiscally prudent. Don't be fooled.