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The state of the housing market

Take a look at this article from cnn/money. The headline is that prices dip 4.5%, yet the very next sub-headline is that “prices rise again in May.”  For a site that generally tries to reach a very mass Joe Investor type reader, that is really confusing. But then again so is the housing market right now. The latest Case-Schiller data that this article is based off of, and is in my opinion the best source of data on housing that exists, is showing two trends.

The first is that year on year, prices are still declining, which is what the headline refers to. This is bad news. There is no recovery occurring yet. Year on Year comparisons are the most telling. There is no room for “seasonal adjustments” to distort the data either way, and considering that house prices are not all that volatile, comparing to a year prior is often a good gauge of where the market stands.

The second trend, is that house prices are rising on a month to month basis, and this is the second time in a row this has happened. Many news sources cite that this is the first time this has happened in a year, but that is not the whole story! The last time house prices “rose” was due to massive government incentives being thrown around everywhere. This is the first time, since the peak around 2007, that prices have risen on their own on a bi-monthly seasonally adjusted basis, without incentives or support in the market (aside perhaps from historically low interest rates). This is good news. The gains were very modest, and not seen in all areas, but prices are at least showing some signs that demand curve has hit the supply curve and we aren’t going to see a continued free-fall forever.

Other signs of life in the housing market are that the overhang of foreclosures appears to have peaked, though it is still very high, and the mortgage default rate is falling somewhat. Foreclosures and short sales are going to take a while to work through the system.

My overall opinion is that the market appears to be ready to stabilize, but its really early to tell. In 6-9 months time, I think it will be “safe” to buy a house and not worry about losing all of your equity. And of course this is on a national basis, your local area may vary considerably.