I have to say, as I pore over the streams of real estate related data that I receive every day, the world appears to be in a better position now than I have seen in several years.
Certainly, there are still certain groups that believe that the housing market is still set to plunge into their version of Dante’s abyss; however, I feel differently for several reasons that I believe are worth taking a look at.
- Financing – for a period after the bursting of the housing bubble, mortgages became almost non-existent (especially non-conforming loans). From 2009 into 2011, credit requirements and down payments rocketed, and in 2011, one in three deals fell apart over financing. Since that time, however, it is clear that financing — although still stricter than it was — has eased somewhat and even the jumbo market has improved substantially.
Mortgage rates are currently at levels not seen in over 65 years (thank you, Greece) and are unlikely to rise in any substantive manner in the foreseeable future. As such, the ratio of mortgage debt payments to disposable personal income is as low now as it was back in 1993.
- Employment – From its peak in January 2008 to its trough in February of 2010, the U.S. lost almost 8.8 million jobs. Since that time we have recovered 3.745 million jobs. This is actually more impressive than one may think, as almost all of the recovery has come from the private sector, while national, state, and local government continues to shed jobs at an unprecedented rate.
Irrespective of this, I am hearing from many people that they are less fearful of losing their jobs now than in a long time. This is important as employment stability is crucial if one is considering any major purchase – and a home is certainly a major one!
- Home Prices – This is really the crux of the issue. Data that was released from several sources seems to indicate that we are at the bottom of the market. The question is, how long will we stay there. Case Shiller data, released earlier in the week, suggested that the pace of decline in values continues to slow. Other indices, such as the Federal Housing Finance Agency, show a very modest increase in values in Q1 2012 (not seen since 2007), and the National Association of Realtors suggests that prices are “firming in many metropolitan areas”.
This is all good news, but as I suggested earlier, there are still uncertainties in front of us. We continue to look at Europe with more than a certain amount of concern. As if the situation in Greece wasn’t enough, contagion appears to be spreading to other places, such as Spain. This is far more disconcerting, as Spain is a much larger economy, and it is uncertain if Europe will be able to bail them out.
Our recovery, although still fragile, is a recovery. Housing has dropped to prices that are not likely to be seen again with some transactions coming in well below replacement cost. I contend that as long as we consider housing to be a home first, rather than an investment, we are looking better now than we have in several years.
The percentage of all cash sales are reaching record levels – a sign that investors have returned to the market. Inventory levels are as low as I have seen them in several years which can be construed as either a good or a bad thing (depending on if you are a buyer or seller!).
With all of this in mind, my advice to buyers is that as long as you are able to meet your mortgage obligations, do not plan to sell again in the near term, and are not looking to their house as a “get rich quick” scheme, now may well be the time to seriously consider your options.