The U.S. housing sector has just experienced its worst year, from price and inventory standpoints, in more than two decades. Moreover, 2008 followed a poor housing sales year in 2007. Various real estate stakeholders are filling the airwaves with ads that pitch, 'Now is a good time to consider buying a home,' 'Housing affordability is improving' and 'On average, a residential home appreciates in value over 10 years.'
But sans the promotional hype and real estate sales stakeholder-based ads, is now a good time to buy a house in the United States?
It is, if you plan to live in that home for five or more years, or a shorter period, if you're comfortable with and/or can tolerate a 10% (or larger) drop in a home price at a re-sale before that period ends.
That's because the reality is median home prices are likely to continue to fall in 2009 in most markets, given the U.S. recession, slack household formation and large housing inventories, so says economist Peter Dawson.
Further, Dawson said it's best for potential home buyers to tune-out or avoid exposure to real estates ads, particularly on t.v. and radio, as "most are filled with half-truths."
For example, it's true that housing affordability is improving, Dawson said, "but that's primarily because median home prices have dropped so much."
Median home prices drop
The U.S. median home price for an existing home in December 2008 was $175,400, down 15.3% from $207,000 in December 2007, according to the National Association of Realtors. Median home prices, by region: Northeast $235,000, down 7.8%; Midwest $140,800, down 11.4%; South $158,600, down 8%; and the West $213,100, down 31.5%.
Further, the ad being broadcast that states that, 'On average, a residential home appreciates in value over 10 years' should stop home buyers right in their tracks, Dawson said.
"They key words in that ad are '10 years' and 'on average.' Ten years is a long time. What the ad is saying is you could buy a house and its price could drop for seven or more of those years, depending on the local market's condition," Dawson said. "The ad isn't providing much positive news about the housing market."
Further, with U.S. inventories at 8-10 months -- well above normal levels -- depending on house type, Dawson expects median home prices to continue to decline in 2009 in most markets. Dawson said an additional 10-15% U.S. median home price decline for an existing home, to $157,000-148,000, would not be unreasonable in 2009.
Housing Sector Analysis: Dawson added that if the U.S. economy starts to recover in Q3/Q4, selected U.S. housing markets would begin to rebound, as well, with firming prices, but he underscored that "we're not near that recovery stage yet."
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Reader Comments (Page 1 of 1)
2-02-2009 @ 2:39PM
nick said...
It is a good time to stay away from buying any large item, houses or cars. Put your money in money markets or CD's. Don't put any money in the market. All your doing is feeding a bunch of crooked Jews, like Crammer and the rest of the slime on CNBC. WAKE UP AMERICAN AND BE READY TO TAKE OUR COUNTRY BACK IN 2010.
2-02-2009 @ 1:15PM
Iridium said...
The housing market can't rebound until people can afford to buy houses. The picture gets darker the further out you look due to the wage earning ability of the next generation.
Generation Y will be lucky to earn half the income of the boomer generation. Generation X will fall somwhere in between.
It is not possible for the young generation to afford the overly inflated housing market built up by boomer greed. Real wages for the younger generation are actually below boomer wages in the 1980s.
At that time a 2200sq ft 4 bedroom house in the top suburb of a big city could be had for $135k. I'm not talking NYC here but real interior America.
It was possible for a base level middle class wage earner to purchase a house in almost any neighborhood. Today a base level middle class worker can barely afford a house in a slum. The suburbs that were once affordable to the base middle class are now only available to families who earn above $100k.
For example: In Rocky River outside of Cleveland during the late '80s and early '90s you could buy a 5 bedroom 2700 sq ft house on or near Lake Erie for $135k. In the middle of the suburb the average home sold for $75k. At the height of the housing boom those lakeside homes were selling for $800k or more. The average home was around $275 with many in the mid 300s.
A person who bought a big home in the late '80s had access to $500-700k in equity over the past 20 years. That is insane and what put us in this mess.
Homes became overvalued by 300% or more. This massive overvaluation set the stage for the total collapse of our economy and doomed future generations.
2-02-2009 @ 3:34PM
Uri said...
Antisemitism aside, there are other half-truths.
The absolute value of your house may not likely decrease over 10 years but how about the inflation adjusted value? Opportunity has a cost too.
The risk adjusted return on housing is just pathetic, and I'm not just referring to the housing market. Your neighborhood could turn, a train could run through your backyard, an uninsurable event could occur, interest rates could change, etc. Houses are highly leveraged undiversified investments which, bubbles aside, produce about at best at inflation.
2-02-2009 @ 4:51PM
Ray said...
Iridium,
A home worth $135K in 1990 appreciating at 5% per year would be worth $341K in 2009. That's not "over valued by 300%", that's normal 5% per year appreciation.
Real estate remains the best vehicle for building wealth, but like many things, there is a right way and a wrong way to approach investing. Me, and others like me, just buy and hold. We don't flip and flop, we ride the ups and downs, collecting more properties, and living below our means. Go ahead and stay out of the game, but your money doesn't grow on the sidelines.
2-20-2009 @ 5:27PM
Andy said...
I don't know when the "right" time to buy will be. No one does. In reality buying a house is a very personal decision for every family based on many factors. For me I started my home buying process ( http://www.savingtoinvest.com/2009/02/buying-home-in-current-real-estate.html ), because I need more place for an expanding family, am planning to stay in my current location for a while and most importantly have sufficient funds to put down a healthy deposit while still having emergency funds set aside.
2-25-2009 @ 11:09PM
BuyNSellRealEstate4All said...
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