Tuesday, January 26, 2010

Home Prices Fall; What to do Now If You Are In the Market for a House

Standard & Poor's/Case-Shiller composite index of home prices in 20 metropolitan areas slipped 0.2 percent in November after a revised 0.1 percent October dip, for a 5.3 percent annual drop.

"Only five of the markets saw price increases in November versus October. What is more interesting is that four of the markets—Charlotte, Las Vegas, Seattle and Tampa—posted new low index levels as measured by the past four years," said David M. Blitzer, chairman of the Index Committee at Standard & Poor's.

Other markets continue to improve month over month, with Los Angeles, Phoenix, San Diego and San Francisco posting price rises for at least six consecutive months.

While I fully expect we are at the beginning of the second downward leg of a double-dip recession, the housing market is probably very near the bottom. The stock market will be the feature player (along with gold) on this next leg to the downside.

Markets that are generally as beaten as the real estate market don't tend to crash. Nobody tries to commit suicide by jumping out of a first floor window, for the big splash you need loftiness.

At this point, the loftiness in the stock market and gold are clear, not so in housing. It's no time to rush in to buy a house, but it certainly makes sense to start looking. If you find something you like, use the crashing stock market as cover to talk down the price of a panicked sellers.

4 comments:

  1. "Markets that are generally as beaten as the real estate market don't tend to crash. Nobody tries to commit suicide by jumping out of a first floor window, for the big splash you need loftiness."

    This makes a lot of sense, although I had never really thought of it this way before. I have friends who are still scared to buy houses because they are afraid of further dramatic price drops (in part because the high end of the market is skewing the aggregated housing statistics in their market too).

    Thanks!

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  2. As I think about this more, I do have a follow-up question.

    Do you think the approaching sky-high interest rates will significantly impact housing prices when they kick in? If it's expensive to borrow money, it seems like that could affect the "recovery" of the real estate sector. Or maybe the gov't will provide low-priced mortgages to keep that from happening?

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  3. A stand alone climb in interest rates would put a damper on housing, but if the Fed tries to monetize the debt by printing money, housing prices, as a long term asset, are likely to be ahead of the inflation curve.

    Thus, little downside, but much stronger upside.

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  4. Houses peaked 5 years ago and the only positive figure is the "median price" going up because the upper end of housing is starting to fall. I think if you buy the lower end now you are safe but if you buy in the upper end prepare for a long stay in that home until you break even. I'm correct in my conclusion right?

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