As you may know, we're house shopping so I'm really keeping in touch with the real estate market in our area (just in the beginning phases now, but I'm ramping up quickly). The latest reports nationally show that the market continues to decline, but it appears that real estate rates of decline may have hit bottom. First, the bad news from CNN Money:
U.S. home prices fell for their third straight quarter, according to an industry report released Tuesday. The median price of a single-family home fell 1.8 percent to $212,300 for the three months ended March 31, compared with the first quarter of 2006, according to the National Association of Realtors (NAR). It was the third consecutive quarter of decline, and prices are now down 6.5 percent from their peak of $227,100 in 2006.
The first-quarter drop follows an overall 2.7 percent slump in the fourth quarter of 2006, which was the biggest year-over-year drop on record.
But there's a silver lining in those clouds:
NAR President Pat V. Combs said in a statement that the flattening in home prices is encouraging.
"It appears the worst of the price correction is behind us," she said. "More stable home prices and declining mortgage interest rates are increasing buying power, which should encourage potential buyers who've been on the sidelines."
NAR's senior economist, Lawrence Yun, also took an optimistic view of the report. "Essentially, we see that the existing-home market is stabilizing in a broad cyclical trough and moving in the right direction," he said in a statement.
Yet it's not all rosy:
The trade group is still predicting a recovery during the second half of this year but overall, it has forecast that prices will end 2007 down, the first time prices fell over a full calendar year since NAR began compiling records in 1967.
So maybe the worst is over -- but that doesn't mean prices won't keep declining (even if they do so at low levels.)
And in my neck of the woods, things are much worse off. The national average was off 1.8% and yet my city was down 3.1%.
I guess I still have some time before I can buy at rock-bottom prices.
No way things have hit bottom. In my area alone (Boston), the inventory of houses for sale is sky high, the spring selling season stunk, and foreclosures are growing exponentially. With all this available property, there is only one place for prices to go. We have a looooonng way to go.
Posted by: Rhea | May 30, 2007 at 11:28 AM
What will hit bottom first is volume. The new home sales bounce could be the start but I would wait for an existing home sales bounce. Only then will prices start to firm. I would venture a year of nominal price declines followed by several years of real price declines (flat prices) in the areas that boomed the most.
Posted by: Lord | May 30, 2007 at 11:41 AM
There is so much fluctuation from area to area that I think you have to take national numbers like this with a grain of salt. Here, there was a never a bubble, and the "slump" was very minor-- prices never went down, they just didn't go up as quickly. It may be over at this point. Meanwhile there are still some places, larger markets, with a rough road ahead. Keep in mind also that NAR has motivation to make everyone think it's over too, so I wouldn't put too much stock in their president's comments.
Posted by: Brad | May 30, 2007 at 11:59 AM
People always sound overly optimistic.
Remember the last bear market for stocks? At first they talk of a soft landing. Then they keep saying "the worst may be behind us" for two years.
It's the same story for the real estate market. At first they speak of a mild correction. I have been hearing "the worst is probably behind us" for half a year now!
These people want to encourage others to buy. It's in their best interest to do so.
Housing inventory is at a very high point. They are making more new houses faster than selling houses.
Check your local inventory statistics to gauge whether or not the prices will stabilize soon.
Home builders are giving out a lot of incentives for people to buy a new house. This is masking a much sharper drop in prices.
Have you seen the video on http://www.speculativebubble.com/?
It is based on a graph from the NYT. We are way above the historical value. Many people are priced out. It will be a long time before things get back to normal.
As a side note, I never get why people want a soft landing. The Japanese real estate market managed a soft landing. It kept going down for 13 years!
It's going to have to get back to its fair value sooner or later. We are nowhere near that point.
Posted by: Edmund | May 30, 2007 at 12:22 PM
My wife had a patient who's a construction worker in the Chicago area say that the housing slump was going to last 10 more years. I hardly believe him. I do believe that the worse is over and although prices may decline a bit more, they won't be as sharp has the last few months. Hurray! I'll be buying a house in a year or two.
Posted by: Dy | May 30, 2007 at 02:30 PM
Can the median household income in your area support the median house price on a 20% down, 30-year fixed? Traditional rule of thumb is 2-3x annual income, except in California where it's a bit higher. If the number don't work, there's a good chance things are going to get a lot worse before they get better. Most of the ARM resets have yet to occur, and as housing prices fall fewer people are able to re-fi into more favorable loan terms. There's a lot of data out there, but you won't find it being touted by the NAR; the main stream media is getting better, but there are still far behind. Robert Schiller is responsible for the graph that is used by the NYT and also has the Case-Schiller index and is author of Irrational Exuberance (which is where the graph comes from).
Dy, it would seem that the construction worker, though he may be off on the time table is in the field and has a good sense of what's truly happening on the ground, no?
Posted by: cami | May 30, 2007 at 04:36 PM
I think ARM resetting is probably something to keep an eye on.
These ARM loans were not taken out all at the same time. They are resetting for people at different time periods. The good news is that it's not going to occur all at once. The bad news is that things may not quickly turn around after "the worst" is behind us.
Posted by: Edmund | May 30, 2007 at 04:40 PM
wow. you're quoting the NAR. wow.
I agree with cami, somewhere floating around cyberspace was a graph showing the ARMs resetting over the 2015-2011 period. I'd suggest looking it up. QUITE amazing!
From the way things are reading, this stage in the R.E. cycle is kinda like the pause in the 3rd round of a heavyweight fight: it's wonderful that the pounding has stopped, but there's a LOT more ahead!
Posted by: Miami2Chicago | May 30, 2007 at 09:17 PM
That guy is from the National Association of Realtors. That's the trade group representing the people who get paid a commission if you decide to buy. For the last year, after every quarter's disappointing sales numbers, they've said that they think things are just about to get brighter...
Here's a quote from you. It's from the National Association of Homebuilders. (They are the trade group for homebuilders, so they might have some financial incentive, but I'm not sure what the angle is... getting some gov't bailout?)
Home Construction Bust May Last Until 2011:
http://www.bloomberg.com/apps/news?pid=20601103&sid=aKQoeHb1MraI&refer=us
Also, here's the graph people are alluding to -- it shows the schedule for when various adjustable rate mortgages' interest rates reset:
http://www.bubbleinfo.com/statistics-2007/2007/3/15/arm-reset-schedule.html
Posted by: ck | May 31, 2007 at 02:25 AM
The NAR???? Well, you did say you were just getting ramped up with the housing information...but anything you ever read from the NAR is housing DISinformation. Go back and read what they've been saying every month since the decline began.
Posted by: | May 31, 2007 at 08:31 AM
....and keep in mind that the NAR's DISinformation is primarily targeted to potential home buyer's such as yourself. You are now in their cross-hairs. Duck!
Only people like you will determine when housing bottoms and recovers because you're the buyers...it's your money. And contrary to what the spin-doctors would have people believe, buyers are ALWAYS in charge. There is no such thing as a SELLER'S market....only markets that at times have the insane buyers outnumbering the intelligent buyers. (Same thing with stocks.)
Posted by: | May 31, 2007 at 08:37 AM
Just so we're all straight on this, the post isn't about whether we've hit bottom or not, but asks if the WORST of the declines is past us. You may think the worst is still ahead, and that's fine, but some of the comments seem to imply that I was saying all the declines are over. Not so.
Posted by: FMF | May 31, 2007 at 09:57 AM