Everybody wants to know if we have hit bottom. There are three indicators suggesting we have—and three suggesting not. The good: prices in many markets have fallen below replacement cost (which is a pretty robust fundamental in the absence of population declines). Morris Davis at Wisconsin has shown that rent to price ratios have returned to be more in line with long term ratios, and given how low mortgage rates are, this is comforting. And resale inventories in California have dropped to under 4 months.It's funny how rising asset prices are always "good" and falling prices are always "bad". More people need to study Warren Buffett's investment philosophy, because he considers low prices to be "good" and high prices to be "bad". As Warren would say, "The price you pay determines your rate of return."
On the down side, we may have a lot of foreclosed houses coming at us in the next year. The employment picture is still atrocious. And if rents keep falling, prices will follow.
I would also guess that the first-time homebuyer tax credit is time-shifting sales, rather than raising them for the long term, but we shall see.
Friday, August 28, 2009
Has housing hit bottom?
The arguments for and against a bottom, by USC professor Richard Green:
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well, "good" is clearly a relative term depending on whose perspective you speaking from. Obviously a first time buyer wants low prices. A seller of course wants stable or rising prices as would someone worried about the macroeconomic crises we've had. So of course an econ professor will define hitting bottom as good in an academic sense if he believes that we've reached a price where fundamentals like rent/price and replacement costs make sense again.
ReplyDeletealso, first?
What is "good," is when a home is thought of as a means to provide shelter and stability rather than an investment. The best pattern for home prices is to follow the rate of inflation. I'm sure glad that's what we're returning to after the home-flipping (threw up in my mouth) frenzy of the last decade.
ReplyDelete"I'm sure glad that's what we're returning to after the home-flipping (threw up in my mouth) frenzy of the last decade."
ReplyDeleteAmen to that! Speaking to this, James was worried that the strength of the CS price increase was the sign of a new bubble. Recall however that one of the things we hypothesized about the bottom years ago was when it hit, there would be a short but sharp bump up in prices as the bottom feeders and chart watchers moved in and outbid one another.
If that hypo was true - theres a good chance thats what we are seeing now. However, once the mini "spike" takes place, prices should level off and track inflation or wages (depending on the area).
So I am not to worried about a new bubble just yet. Nor do I think anyone needs to worry about buying now or being priced out forever. I would rather buy at 5% above bottom if it meant a lot less competition from bottom feeders and chart watchers (which ironically I am one of : )
In my area the majority of sales are FHA with 3 1/2% down. scary
ReplyDelete3.5% dowm payment today = jingle mail next summer
ReplyDeleteSo glad I found this site. Thank You for the info and insight.
ReplyDeleteWhat is "good," is when a home is thought of as a means to provide shelter and stability rather than an investment.
ReplyDeleteOr when a "car" is thought of as a means to provide efficient transport from point A to point B. Or when "food" is thought of as a means to meet one's caloric and nutritional needs.
Not only has loose lending/funny money been removed from the propped up bubble, we now have something we did not have a year ago; higher unemployment.
ReplyDeleteSo then, can we deduce that higher unemployment results in a housing bottom? A recovery? I fail to see the connection.
What I do see is the same caliber of sheeple running out to purchase during this “once in a lifetime chance”. More sheeple, more realtorspeak.
Tuskenrayder said :
ReplyDelete"What is "good," is when a home is thought of as a means to provide shelter and stability rather than an investment. "
I disagree. I don't see anything wrong with thinking of your home as an investment along with being a shelter. You are (hopefully) building up equity in an asset that you will likely want to sell later in life. The problem is people who believed real estate was a magical asset that would always appreciate at 10% a year forever with no downside risk. And of course lenders, realtors, appraisers etc who enabled these fairytale "investors".
The main point was
ReplyDelete"The price you pay determines your rate of return."
This i agree with