Could the housing correction be close to an end?
Filed under: Real Estate
MarketWatch chief economist Irwin Kellner explains why the housing correction is likely to be nearing the end. And unlike what you'll hear from some real estate agents, it isn't just happy talk designed to make you buy. He writes:Nationwide, prices of new and existing homes are now only about 7% away from being as affordable as they were during the 1980s -- when the housing market was booming. At that time, median home prices equaled 2.9 times median household incomes.
His logic makes sense: During the real estate bubble, home prices sold for around 4.5 times the median household income. When you combine the newfound price affordability with the low interest rates (even after the past week's jump) that make payments affordable, it seems that home prices are starting to actually make sense in terms of how much people earn.
Another reason to think we're close to the bottom is that the banks appear to have over-corrected for their past sins related to sloppy lending standards. Getting a mortgage right now is tougher than it's been in a long time and if it gets a little bit easier over the next few years, that could lead to more buying.
It seems unlikely that prices will touch the heights they reached a few years ago for many, many years, but if you can find a home to buy for less than it costs to rent, this might be a good time to do it.
Reader Comments (Page 1 of 1)
1-23-2009 @ 10:45PM
M said...
Sure, great time to buy except I'm currently laid off with dismal prospects for finding a job any time soon. With many others in the same situation, housing correction may take quite awhile longer until employment situation improves.
Reply
1-24-2009 @ 2:22AM
Gail said...
I wrote about this the other day questioning at what prices level’s we would go back to. I like the 1980’s better than what my guesstimate was. But the bottom line is this; there are a lot of individuals who have been laid off because of the housing fall. Everyone knows that housing represents one fifth the GDP, and when the housing sector is not working there is tremendous fall out. We design homes for a living and in the past if there was a recession, remodel additions kept us a float, when the economy got better custom homes was the choice of the day. This time around is completely different as not only do we have a house problem, but the stock market has gone south as well.
Everyone needs to remember the trickle down effect of any business (I will use our business as an example), i.e. You hire an Architect/Designer to re-design your home, the plans need an Engineer to do the structural drawings and than added to the Architect/Designers plan set. The plans get completed and sent to the print shop that prints the plans that get submitted to the cities/counties for permitting which brings revenue to the cities/counties. Then you hire a Contractor, who hires sub-contractor’s and all of these guys use supplies purchased at the stores. Easily, one set of plans provides anywhere from 16+ jobs. If the housing sector is not working it affects everyone… Ideally the resolution to the housing sector was to let it bottom out, but unfortunately it hurt a great number of Americans. It’s not fair this happened to the innocent, but we could not keep going at the rate we were going.
I read this interesting interview with Fannie Mae’s first Chief Credit Officer, Edward Pinto and Chip Hanlon from Safehaven http://www.safehaven.com/article-12386.htm
I pray we are at the bottom and that people not recognize it’s the bottom does look in the review mirror and see it happened a year ago. But I pray more that we just stabilize…
Gail
Mddesignhomes.com
Reply
1-27-2009 @ 12:03PM
Logistical said...
On Saturday I decided to buy the rented house I live in. The price was good - 25% below its peak - and I was offered a 100% mortgage. The agent, an office dedicated to selling homes on this new development, was busy busy busy. Green shoots?
Reply