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!
I have waited a couple of days to see if any Realtors commented on this specific post.
My thoughts are that your opinions are correct.
However, I am not one to best guess the market. I analyze it carefully. I keep my clients posted constantly as to what is being bought and sold in their neighborhood. Stats speak for themselves. My clients are privy to everything that happens in the market. I make darned sure of it. We go over it together, home by home. We physically preview, talk about it, then we make a move. No crystal balls, no air plucking, no sweet talk, no bones about it. If we have to chase the market, then we go for it. My clients rely on me. I owe it to them to show them what’s really going on in the market. ~ Jeanie
It’s amazing how important this question has become. You know the housing market is bad when the city actually devalues your house for property tax purposes. It’s making the credit squeeze even more problematic, and definitely reducing mobility for many folks looking to make a move, in the market or otherwise.
That said, I think some of the plans to address the real estate problems in the legislature are incredibly shortsighted.
I agree. The Legistlature’s plan for “helping” could really hurt the entire Twin Cities market. I’m hoping to write about that as well but have been hoping they’ll drop it.
I’d be surprised if they do. Good intentions and political grandstanding tend to stick around.