This question comes up with both my clients and my coworkers: “When will we hit bottom?”
The problem with that question is that there is more than one answer. Are we talking about:
- Lowest sales price?
- Fewest units sold in a month?
- Highest supply of homes on the market?
- Longest days on market?
- Lowest (or highest) affordability?
Depending on who you are and what you are looking for, your opinion of what a market bottom is will be different. I have a good friend who is a cash buyer and he’s looking for a home that he can pick up for a rock-bottom price since interest rates are not his concern. I have other buyers that are financing most of the purchase and are much more sensitive to the interest rate changes than they are to the price changes.
In terms of the questions above, here’s my current opinion on them:
- Sales prices have hit a seasonal bottom and won’t touch their previous lows until this fall/winter. No one knows where they will be by this time next year but almost everyone agrees they will not be higher.
- We’ve also hit the seasonal low for unit sales, which was in January & February. Unit sales are still trailing behind last year though and that is likely to continue through the rest of this year.
- We’re very close to a “peak inventory” number. We’re only up 4.7% in inventory for the same week last year and that number has been shrinking nearly every week since the 1st of the year. At this rate, we will hit peak inventory this summer.
- Days on market are seasonal as well, so market times will be down for the next 6+ months before hitting their max again in early 2009.
- Affordability (interest rate x income x home prices) has hit a 5-year high and may go higher from here but is extremely dependent on interest rates and sales prices.
There is no bell that will ring at the bottom but we are beyond the point of seeing capitulation in this market: buyers are smarter, sellers are more realistic, banks are getting better at short sales and foreclosures, and many of our metric show signs of improvement or at least slowing of the worsening.
I am telling my buyers to look at these homes as a place to live first, a way to fix their housing costs second, and an investment a distant third. Regardless of what you consider a bottom and when that bottom hits, if you’re looking at 4+ year time frame for living in the home after a purchase, I think you’ll be happy with your decision down the road.
No matter what anyone says or what reports they publish, it is all a best-guess (or sometimes a pluck-from-air guess). As I’ve said to many people, if I had a crystal ball, I wouldn’t have to sell real estate!
