This goes in the category of "the dog that didn't bark." Despite all the gloom in the housing market, sales activity has been essentially flat (well, actually, this measure of sales fell 3% from year-ago levels, but that's pretty close to flat in my book) for the past year. Prices are down, but falling prices have enabled the market to clear. We are not in free-fall; markets are working. Lots of people are losing lots of money as prices fall, but there is still demand to own the existing stock of housing. Lots of people are buying homes at prices that are far more affordable than they were a few years ago.
When compared to the peak, home sales are really weak. But, compared to the pre-bubble time period of 1999-2003, home sales are off perhaps 20%.
ReplyDeleteI suspect as prices continue to stabilize and confidence in real estate as an investment returns, sales will start a steady climb.
Affordability indexes indicate that it makes sense once again to own vs. rent, which means that it also makes sense to buy RE as an investment (and rent it out). Once an investment becomes a value proposition, volume and prices usually increase.
Who can really argue that prices are down and mortgage rates low. There are other factors to consider that are not so bullish, such as house price momentum and inventory levels.
ReplyDeleteA lot of the sales volume is REOs and other distressed selling. As a percentage of sales volume, this is about to increase as moratoria expire. I don't see that being good for prices. A lot of supply is coming onto the market (http://www.fieldcheckgroup.com/) and demand just is not that strong, and not likely to be until unemployment starts to decline.
We also have to be careful with indexes. The carnage is moving from subprime into higher priced housing, so median and average sales price in the indexes seem to stablize or even rise. As for affordability indexes in particular, they also assume that buyers can get the best rates. Not so easy these days, and there is also a lot less housing equity around for move up buyers to use.
I agree on the price to rent and housing as an investment thesis. However, I am only seeing attractive pricing (based on this metric) in a handful of regional markets.