Real Estate To Come Back Soon?

[jtwestside]

I think we have a little way to go.

From http://theaffordablemortgagedepression.com/2008/11/24/dont-buy-a-house-yet.aspx

No offense jt, but if you are looking for advice from a site called "the affordable mortgage depression", you are probably going to get the most negative forecast possible. ...

No offence taken, I didn’t expect anyone to think it was a non-bias source.

The point is that the mortgages will be resetting until 2012. Disregard the advice, but the mortgages resetting will cause foreclosures and the foreclosures will cause lower home prices. You're correct that it's not just going to keep going down and down until then and we will equal out, but the site has a point the market certainly isn't going to be "turning around" until the foreclosures work their way out of the system.

What I'm finding in the market I'm looking (Springfield) is that there is a price point (199K)  that people seem to be attached to when it should probably be 150-170. For some it's an emotional attachment they bought the house for less maybe put money into (some) restoring and now the market has turned and it's hard to realize that something you expected to gain value has actually lost it. For others they owe right at that much so they can't go any lower. For those who do (and the home is in OK shape) the homes sell pretty quickly. But most houses that are in GOOD shape are still at the 250-300 when they should be around the 199 price point. Of course this is just subjectively based on what I'm willing to pay. I'm hedging my best on there being more on the market after the new year (distressed or not).

Speaking of sources. These people have gotten it right so far http://www.itulip.com/housingbubblecorrection.htm

According to the date stamp on the site this was posted on January 20, 2005 (they wrote back then it will take 15 years)

Step B: As housing prices begin to decline, sales will continue, though more slowly and less frequently. Old habits die slowly. One year into the decline, housing speculators will have left the market, but home owners will generally still believe that prices will either resume their rise or at least flatten out, not continue to decline. Remember the first year of the stock market bubble decline, when most people hung in there until they'd lost all of their money? The first lesson of behavioral finance is that the most common mistake made by market participants is to hang on too long and fail to cut losses.

While home owners at this stage will borrow less against their houses, and loans will be more difficult to come by, the average home owner will still make frequent trips to Home Depot or hire contractors to make home repairs and improvements, believing they'll "get their money back" in an increase in the value of their home at least equal to the cost of fixing it. Some home owners will put their home up for saleâ€"if they purchased early enough in the boom so that they can still realize a profit, even selling at five to twenty percent below the peak price.



Step C: After prices have declined for two years, large numbers of buyers who purchased near the top of the market will begin to feel the psychological effects of being underwater on their mortgage. They will be less inclined to borrow money, or to spend money fixing up their home, as home improvement value increases will be swallowed up by general market price declines. There will still be profits to be made by those who bought very early in the previous boom cycle, but fewer people will have this option.

As transaction volumes continue to fall, demand for housing-related employment will decline too. The first signs of labor market distress will start to show up, as more and more of that 43% of the private sector who found jobs in the housing industry are no longer needed. Coincidentally, major employersâ€"such as the U.S. auto industryâ€"will be going through major restructuring, adding to pressures on housing prices in some areas. Some home owners will need to sell at a loss in order to move to regions of the country where the labor picture is better, and will do this if they have enough equity and are not paying cash out of pocket to cover their remaining mortgage obligations. These sales will further depress home prices.

Step D: Three years into the decline, marginal home buyers will learn what owning a home really costs, versus renting when housing prices are declining and jobs are more scarce. Rent is a fixed cost, whereas home ownership presents many variable costs, including increased interest payments on ARMs, and rising tax, insurance, and energy costs. Also, upkeep for the average home typically costs five to ten percent of the price of the home, annually. As prices fall, homeowners will have less access to home equity loans. Many will not be able to afford repair and maintenance expenses. Homes in some neighborhoodsâ€"and in some cases, entire neighborhoodsâ€"will begin to look neglected, further depressing prices.

Step E: Five years into the downturn, rising unemployment will begin to more seriously affect the market, as indicated in Chart 1. As unemployment rises, homeowners will leave housing bust regions to move to areas where there are more jobs. Many houses will be sold at a loss, or even abandoned, as the market price falls below the loan value. Given the choice between paying cash out of pocket to sell their home or leaving the keys with the bank, many home owners will make the latter choice.

Step F: Ten years into the downturn, real estate will be widely regarded as a terrible, "can't win" investment. McMansions will be subdivided for rental as multi-family homes.

Step G: Ten to fifteen years after the start of the decline in housing values, prices will bottom out, setting the stage for the next boom. Time to buy.

[RiversideGator]

"Basically sound" = "about to implode"

I guess you could always say this about the economy as there is always a recession ahead at some point during times of even the greatest expansion. 

[RiversideGator]

The point is that the mortgages will be resetting until 2012. Disregard the advice, but the mortgages resetting will cause foreclosures and the foreclosures will cause lower home prices. You're correct that it's not just going to keep going down and down until then and we will equal out, but the site has a point the market certainly isn't going to be "turning around" until the foreclosures work their way out of the system.

Mortgages are always resetting.  Are there greater numbers of resets upcoming in 2012?  Also, predicting 4 years down the road on the economy is very doubtful.  Very few people would have predicted the current situation in 2004, for example, and those who did are probably always pessimists.  In the next 4 years, many of those people will refinance and pay off their current mortgages or will sell their homes or will be able to make the new payments.  The bottom line is there is no way to know what economic conditions 4 years from now will be.

What I'm finding in the market I'm looking (Springfield) is that there is a price point (199K)  that people seem to be attached to when it should probably be 150-170. For some it's an emotional attachment they bought the house for less maybe put money into (some) restoring and now the market has turned and it's hard to realize that something you expected to gain value has actually lost it. For others they owe right at that much so they can't go any lower. For those who do (and the home is in OK shape) the homes sell pretty quickly. But most houses that are in GOOD shape are still at the 250-300 when they should be around the 199 price point. Of course this is just subjectively based on what I'm willing to pay. I'm hedging my best on there being more on the market after the new year (distressed or not).

Just because you think prices are too high doesnt mean they are.  Prices were much cheaper in 1980 too but those prices arent coming back.  If you think things are expensive now, wait till 2012.   

Speaking of sources. These people have gotten it right so far http://www.itulip.com/housingbubblecorrection.htm

According to the date stamp on the site this was posted on January 20, 2005 (they wrote back then it will take 15 years)

Real estate cycles have NEVER taken 15 years to resolve themselves.  Even the Depression didnt last that long.  This is frankly nonsense.

[jtwestside]

*Edited graphs to reflect Springfield and not all of 32206.

Are there greater numbers of resets upcoming in 2012?

Not just in but UP UNTIL. Isn't that one of the key ingredients to this whole mess? I think that's the flaw in your thinking, you seem to want to ignore the fact that one of the reason for the bubble was inflated home prices by the banks so that they could sell more loans. Unfortunately now that the home prices are deflating and the ARMs are adjusting people are realizing that they really can't afford that 4k square 5 bed 4 bath Mc Mansion they bought then promptly refinanced a couple of times (because home values were still inflating) to buy a hummer and a motorcycle.

Prices were much cheaper in 1980 too but those prices aren’t coming back.  If you think things are expensive now, wait till 2012.

And we'll never have sub $2 a gallon gas either.  Bet if I asked you a year or even 6 months ago if home prices would be headed towards 2006 levels you would have said the same thing, right? I would love to get what home in my hood were selling for even 9months ago, but I can’t now, maybe in 3 years …

I'm not saying 1980 (but heck who knows at this point) and I know the site says 2012. I have no doubt that foreclosures will still be a historic highs until then. I have faith in the market and that's why I'm looking. I never said I was waiting til then. I also never said I was going to listen to the association of realtors and jump in for the heck of it either. I'll take all the info I can get and make my choice.

I'm also glad the home I'm selling was bought in 2002 with a conventional mortgage and not refi with equity taken out.

Real estate cycles have NEVER taken 15 years to resolve themselves.  Even the Depression didn’t last that long.  This is frankly nonsense

.
I keep seeing you make comments like this, but what is it based on? When have we ever had a bubble like this one?

Just because you think prices are too high doesn’t mean they are.

Don't take my word for it, take the markets. *I should add that I'm not saying all aren't, but some have unreal expectations based on the market from a year or more ago. People are slow to adjust. And once again I think that's just the beginning.  http://www.firstcoastnews.com/news/local/news-article.aspx?storyid=125149&catid=3('Foreclosure Holiday' Helps Struggling Homeowners) There will be another drop in home values after the first of the year. Slow Christmas sales, who knows with the auto makers, and of course Obama not being the 2nd coming is all going to hit people at once.

[RiversideGator]

And now even the NY Times seems to indicate that a bottom has been reached in real estate.  This is good evidence that the bottom was actually about 6 months ago.  Anyway, here is the article:

Maybe It’s Time to Buy That First House

By RON LIEBER
Published: December 5, 2008

Five or 10 years from now, when the financial crisis has ended and housing prices are up smartly once more, we will look in the rearview mirror and realize that we missed a golden age for first-time home buyers.

Then, everyone who sat on their down payment savings accounts for a few years too long will kick themselves for not taking advantage of what may turn out to be the buying opportunity of a lifetime for those who can qualify for a mortgage.

Unfortunately, we do not know when this golden age will begin, because we will be able to identify a bottom to the housing market only with the benefit of hindsight. But as it does with the stock market, the moment will probably arrive when everyone is feeling the most pessimistic.

That moment is certainly getting closer. Housing prices have fallen drastically from their peak levels in many areas of the country. Rates on 30-year fixed-rate mortgages are already close to 5.5 percent, and this week there were suggestions that the federal government might try to drive them down to 4.5 percent, a truly incredible figure to be able to lock in for three decades.

Meanwhile, first-time home buyers have the same advantage they have always had, which is that they do not have to sell their old place before buying a new one. That is an added advantage in areas where many available houses simply are not moving, because the people trying to sell them will not be bidding against you.

If you’re hoping for a recovery in the housing market, you ought to be cheering on the first-time home buyers. When they purchase homes, their sellers are free to move on or move up, stimulating further sales.

But if you are a potential first-time buyer yourself, or lending or giving the down payment to one, you are probably as frightened as you are tempted by all the “For Sale” signs that have become “On Sale” signs. So let’s quickly review some of the still-grim pricing data in certain areas â€" and consider the reasoning offered up by first-time buyers who have forged ahead anyhow.

As is always the case with real estate, much depends on location. One study, “The Changing Prospects for Building Home Equity,” tries to predict where today’s first-time buyers in the 100 biggest metropolitan areas may actually have less home equity by 2012 as a result of continued price declines. The verdict was that buyers in 33 of the markets could see a decline by 2012, including potential six-figure drops on an average home in the New York City, Los Angeles, San Francisco and Seattle metropolitan areas.

This is obviously scary. (I’ve linked to the study, a joint effort of the Center for Economic and Policy Research and the National Low Income Housing Coalition, from the version of this article at nytimes.com/yourmoney.) It’s worth noting, however, that these predictions came before the government made its most recent move to reduce borrowing costs.

Also, the price projections in the study are based, in part, on the fact that the ratio of purchase prices to annual rents is still higher in many areas than the historical average, which is roughly 15 times rents. While past figures may well have some predictive value, I have never been convinced that first-time buyers compare a home that they could own and one that they would rent in purely or even primarily economic terms.

When Jaime and Michael Proman moved this fall to Minneapolis, his hometown, from New York City, they craved a different sort of life after two years together in a 450-square-foot studio apartment. “We didn’t want a sterile apartment feel,” said Mr. Proman, who is 28 (his wife is 26). “We wanted something that was permanent and very much a reflection of us.”

The fact is, in many parts of the country there are few if any attractive rentals for people looking to put down roots and enjoy the sort of amenities they may spot on cable television home improvement shows. Comparing a rental with a place that you may own seems almost pointless in these situations, especially for those who are now grown up enough to want to make their own decisions about décor without consulting the landlord.

Still, for anyone feeling the urge to buy, a number of practical considerations have changed in the last year or two. The basics are back, like spending no more than 28 percent of your pretax income on mortgage payments, taxes and insurance. Even if a lender does not hold you to this when you go in for preapproval, you should hold yourself to it.

You will also want to start now on any project to improve your credit score because it may take several months to get it above the 720 level that qualifies you for many of the best mortgage rates.

John Ulzheimer, president of consumer education for credit.com, a consumer credit information and application site, suggests starting to pay down and put away credit cards months before you apply for a loan. That is because the credit scoring system could penalize you if you use a lot of credit each month, even if you always pay in full. Also, check your three credit reports (it’s free) at annualcreditreport.com and dispute errors.

While no one can easily predict the likelihood of losing a job, Friday’s startling unemployment figures suggest the need for caution if you think you might be vulnerable. A. C. Panella, who teaches communications at Pasadena City College in California, waited until she had a tenure-track job before buying a home in the Highland Park section of Los Angeles with her partner, Amy Goldman, a lawyer for a nonprofit organization. “We could afford the mortgage payment on one salary, were something to come up,” Ms. Panella, 31, said. “It’s really about being able to stay within our means.”

For many first-time home buyers, that philosophy stretches to the down payment, too. Ms. Panella and her partner put down 20 percent when they bought their home in September, as did the Promans when they bought their home in the Lowry Hill neighborhood of Minneapolis.

Alison Nowak, 29, put just 3 percent down on a Federal Housing Administration-backed loan last month when she and her partner, Lacey Mamak, bought a $149,900, 800-square-foot home several miles south of where the Promans live. “Anything that is an opportunity also has a bit of risk,” she said. Her house was in foreclosure before a plumber bought it and fixed it up. “One way we mitigated it was that we bought a really tiny house in a very good neighborhood.”

One other strategy might be to buy new instead of used. Ian Shepherdson, chief United States economist for the research firm High Frequency Economics, says he believes that a steep drop-off in inventory of new homes is coming soon, thanks to a rapid decrease in home builder activity.

Since prices generally soften in the winter, it may make sense to start looking seriously once the mercury bottoms out. “If you look at new developments next spring, you may not have the choice you thought you would have or be in the bargaining position you thought you would be,” Mr. Shepherdson said. Also, if you wait after June 30, you will miss out on a $7,500 federal tax credit for income-eligible first-time home buyers that works like an interest-free loan.

Finally, allow yourself to consider how it would feel if you bought and then prices dropped another 10 or 15 percent. It might not bother you if you plan to stick around. Plenty of people seem to be making a longer commitment to their homes. According to a survey that the National Association of Realtors released last month, typical first-time buyers plan to stay in their home 10 years, up from 7 last year.

Perhaps people are more aware that they will not be able to build equity as rapidly as others did in the real estate boom. Or they simply have more confidence in hard, hometown assets now than in other markets.

“We wouldn’t let another decline bother us,” said Michael Proman. “You can never time a bottom. This is a long-term investment for us, and it truly is the best investment we have in our portfolio right now.”

http://www.nytimes.com/2008/12/06/business/yourmoney/06money.html?_r=1&ref=business

[RiversideGator]

And NPR seems to agree that now might be a good time to buy:

Is Now The Time To Buy A House Or Refinance?

by Erin Killian

NPR.org, December 5, 2008 · Mortgage rates are falling, opening the door for potential homebuyers who have been afraid of the unstable real estate market â€" and home owners looking to save on monthly payments.

For a 30-year fixed-rate mortgage, interest rates are now in the 5 percent range â€" close to the lowest they've been in nearly two decades, according to weekly figures put out by the Mortgage Bankers Association. In June 2003, the rate hit 4.99 percent.

Due to the low rates, MBA reported Wednesday its largest increase in applications to refinance mortgages in its 18-year history of putting out the weekly report. Applications do not directly translate into loans, but consumers are clearly reaching out to their banks and brokers to lock in good deals.

What's more, the Treasury Department is weighing a plan for new homebuyers to push rates for 30-year fixed mortgages to 4.5 percent, down from the current 5.6 percent average, according to BankRate.com â€" a move aimed at spurring investment in the foundering real estate market.

So is now the time to buy or refinance? Experts say that if you have enough equity in your house, it may be time to refinance. But if you're looking to buy â€" especially in markets like San Diego or Washington, D.C., which saw some of the biggest price jumps during the housing boom â€" it might be worth it to wait a few months. That's because even though interest rates are low, they're likely to stay low and housing prices continue to fall.

Why are mortgage rates falling?

Last week, Federal Reserve Chairman Ben Bernanke announced the agency would buy $500 billion worth of long-term securities to drive down yields on long-term Treasury bonds. The interest rate for a 30-year fixed-rate mortgage is typically in line with the yield on a 10-year Treasury note, so in response to the Fed's move, rates on mortgages began to fall â€" to 5.5 percent and lower.

Are interest rates likely to drop further? Or should those looking to buy or refinance grab these low rates now?

For those interested in refinancing, consider this: Historically, 30-year mortgage rates have been about 150 basis points above the yield on the 10-year Treasury note. On Thursday, that yield was 2.57 percent. Add 150 basis points to that figure, and you would get a mortgage rate of 4.07 percent. But right now, the spread is closer to 300 basis points, with rates at 5.6 percent. That suggests that interest rates have further to fall to close the spread, says David Kittle, chairman of the Mortgage Bankers Association.

But even if rates do fall more, they are not likely to fall that much more, so it doesn't make sense to wait and see before refinancing, he argues. "If you get greedy over an eighth or a quarter [of a percentage point for interest rates], it always turns around and bites you," says Kittle, who is also executive vice president of Louisville, Ky.-based Vision Mortgage Capital.

"I don't see a downside to refinancing," adds Dean Baker, co-director for the Center for Economic and Policy Research in Washington, D.C., who warned about a housing crash years before it happened. He notes, however, that people whose houses have experienced steep drops in price may not have enough equity in their homes to refinance.

But when it comes to taking out a mortgage, Baker advises waiting to see how the Treasury's plan to lower interest rates as low as 4.5 percent shakes out. And he notes that the plan, if it happens, could also help push refinancing rates a bit lower, too.

So does that mean that now is the time to buy?

There are wide-ranging opinions on this.

The risk in buying a new house is that the market has not hit bottom. The U.S. is in a recession, and foreclosure rates continue to weigh down prices. If people can't pay their mortgages because they are losing their jobs, the supply of homes for sale will keep growing, putting a "downward pressure on prices," says Susan Wachter, professor of real estate and finance at the University of Pennsylvania's Wharton School of Business.

But even though no one knows when â€" or where â€" the market will hit bottom, Jack Guttentag, professor of finance emeritus at Wharton, thinks the bottom can't be too far away.

If you can get a house under market value, at historically low mortgage rates, it may be the time to buy, argues Kittle of the Mortgage Bankers Association.

The trick, of course, is figuring out what market value is in places such as Los Angeles and Florida, where housing prices have been falling by 3 percent a month, says Baker. He expects prices to plummet another 10 percent to 15 percent over the next year.

And it may be worth it to wait a bit more to see what happens with the Treasury's latest mortgage plan, he says.

Is it harder to qualify for a mortgage now?

Standards have tightened. In most cases, you have to prove that you can afford the monthly payment. That means you have to have a job, a decent credit score and the assets you say you have.

But you don't have to put down 20 percent of the purchase price if you don't have it â€" some traditional banks will let you put down as little as 5 percent, says Guttentag; you just have to prove you have enough income to make your monthly payments. And if you're applying for a Federal Housing Authority loan, you can buy a house with a down payment of just 3 percent, though that will rise to 3.5 percent on Jan. 1.

The real question is whether it's worth it â€" especially if you think house prices have much further to drop.

What if I am refinancing? What closing costs should I expect?

A general rule is closing costs for a refinanced mortgage will fall between $2,000 and $2,500.

If you closed your loan within the last one to five years, you should get the re-issue rate on your lender's title insurance, which can be up to a 70 percent discount, according to Kittle. That would be a $350 discount on a $500 lender title policy. But borrowers need to ask their title company or closing attorney specifically for this discount, because it's not illegal to charge the full price â€" even if it is unethical, he says.

Are mortgage rates likely to stay low for a while?

Yes â€" because there are many factors spoiling the economy.

"In some sense, for homebuyers, it's the best of times and the worst of times," says Guttentag, who writes the Mortgage Professor's Web Site. "It's the best of times because prices have come down. … The other side of it is this option is available only to people who can qualify in the current market. Everything is more difficult right now."

http://www.npr.org/templates/story/story.php?storyId=97828145

[RiversideGator]

And so does a Fortune magazine editor:

Maybe It's Time to Buy

The sickening collapses in house and stock prices from their peaks have trimmed about $13 trillion -- almost a year's output for the entire U.S. economy -- from Americans' net worth. Not since the Great Depression almost 80 years ago have we seen anything like these simultaneous housing and stock implosions, and back then houses and stocks were owned by only a relative handful of Americans, whereas in today's world, two-thirds of us own houses and half of us own stocks.

It's really scary out there. The S&P/Case-Shiller index, which measures housing prices in 20 big markets, continues to fall. Foreclosures mount; dire predictions fill the air. The stock market lurches up and down like a roller coaster on steroids, and seems to fall -- or occasionally rise -- by 5 percent or more every other trading day. Each weekend, you expect to hear that yet another big financial institution has to be closed down or bailed out by federal regulators. Lots of us who have invested for years (including me) have had a big part of our net worth wiped out almost overnight. It makes you feel like crawling into a cellar, closing the door and not coming out until the all-clear signal sounds.

But even though housing and stocks may be the last things you feel like talking about, they are things that you should talk about. That's because for the first time in years (or maybe decades) prices of homes and U.S. stocks have fallen low enough to be considered reasonable long-term investments again.

No, I'm not suggesting that you run out and binge-buy houses and stocks. Even though they have fallen about 25 percent and 45 percent, respectively, from their peaks, houses and stocks could well fall further, possibly much further. That's what happens when bubbles deflate -- things can fall into a reasonable-value zone, then keep falling until they're unreasonably low. It's the other side of an inflating bubble, during which prices can keep rising even after they're unreasonably high.

But if you're prudent -- I'll define that a bit later -- and if you're willing and able to commit your money for at least six years, I think you'll wake up in 2015 or 2016 and see that you've done okay. You won't make the nearly 20 percent a year that U.S. stocks generated during the 1982-2000 bull market, or the even bigger gains homeowners and flippers made on their investments early in this century, when the housing bubble inflated. But you're more than likely to make some reasonable money, much more than you'll make hiding out in Treasury securities or money market mutual funds. [RG: Or commodities]

But before you rush to write checks, please remember that you shouldn't put money into stocks or houses or other investments unless you can do it while adhering to the three eternal verities of financial survival. They are: Live within your means or below them; shun credit card debt like the plague it is and don't borrow except for an education, a home or a car; and use your house as a place to live, not as a cash machine or a get-rich-quick scheme.

In addition, don't start investing until you've accumulated an adequate reserve fund. To me, that means enough to cover your bills for at least three months if you (and any other employed people in your household) lose your job (or jobs).

The only exception would be to invest modestly in a 401(k) or similar retirement program to take advantage of your employer's matching contributions.

Now to our discussion. Let's start with stocks, which are easier to analyze and invest in than houses are. Stocks are selling at about the same prices they were 10 years ago, which means the U.S. market as a whole has been dead money for a decade. But that may be changing. In fact, some of the smartest long-term investors in the country, who had largely shunned stocks for years, now say that stocks have moved into a reasonable zone.

Bob Rodriguez of FPA Capital told a Fortune magazine roundtable that the number of stocks that pass his value screen has risen to 447 (out of 10,000), up from only 33 in June 2007. Jeremy Grantham of GMO, another roundtable participant, considers stocks to be reasonably priced for the first time in years. Stocks have reached reasonable levels even by the tough standards of Yale professor Robert Shiller, famous for calling both the stock and housing bubbles.

However, that doesn't mean that the U.S. stock market is risk free. Far from it. No matter how cheap stocks may look, they can get significantly cheaper. The classic example: Warren E. Buffett, the best investor of our time, who issued a buy recommendation on the U.S. market in an Oct. 16 New York Times op-ed article. Standard & Poor's 500 closed at 908 the day before Buffett's article appeared and subsequently fell as low as 741. It's 871 as I write this. (Disclosure: Rodriguez's mutual funds and Buffett's Berkshire Hathaway are two of my family's biggest investments.) Buffett is a director of the Washington Post Co.

The unstated assumption behind what Buffett and these other folks are saying is that you must have the stomach and financial resources to survive declines, possibly very steep ones.

Let me elaborate. You need to have staying power. Don't borrow to buy stocks. Don't use your eating money or next year's college tuition money to buy stocks. Don't bet on having a much better year financially than you're having now unless there are special circumstances, such as being a medical resident about to become a practicing physician. Invest only money that you can afford to tie up for years, if not decades, and that you can afford to lose.

And now to houses, which are much trickier than stocks. That's because while you can buy a piece of the whole U.S. stock market through an index fund and thus diversify your risk, you cannot buy a piece of the total U.S. housing market. You can buy only a house -- and you have to take on a lot of debt to do it, which in itself increases your risk.

Nationally, house prices on average have begun to look reasonable for the first time since 1999, when the housing bubble began. The steep drop in home prices has made them relatively cheap in terms of rent and family income. Those relationships matter because when prices are rising much more rapidly than income (the case until last year), more and more people get priced out of the market. So in order to play the game, buyers and their lenders have to take on idiotic risks -- option ARMs, anyone? -- that ultimately make buyers and lenders look like idiots.

The National Association of Realtors affordability index (the median income divided by the median mortgage payment) has risen to 1.42 from 1.08 in 2006, the height of the real estate bubble. That means that the median household income is 142 percent of the median mortgage payment, up from 108 percent. This index assumes a 20 percent down payment and doesn't cover real estate taxes, insurance or other home owning expenses. Thus "affordability" is in the eye of the beholder (or mortgage lender). But the trend is what matters, not the specifics that the index measures.

Then there's an index kept by David Wyss of S&P. It shows that the ratio of average house prices to average income has dropped to about 2.45 from 3.41 in 2006. That means houses are becoming cheaper relative to incomes. Finally, there's the rent-own index by Louis Taylor of Deutsche Bank, which compares the cost of renting a home with the cost of buying it. Those numbers are starting to reach the point where house prices may be supported by people who buy them to rent them out.

But just because those indicators are improving doesn't mean that buying any house in any market is a good deal. A lot of people tried doing that during the great housing bubble and got burned. House markets are intensely local, even though mortgage financing is national.

When I talk about buying a house, I'm talking about making a serious down payment -- call it 10 percent or 20 percent -- and borrowing the rest at a fixed rate for 30 years. You accumulate that down payment by living below your means and saving. You can probably buy with less money down, but the less you put down, the more you have to borrow, and the bigger chance you're taking.

So there you have it. If you've gotten this far, I hope that you're more hopeful thinking about houses and stocks. They may well be cheaper when the 2010 Fortune Investor's Guide rolls around than they are now. But if you buy conservatively and have staying power, I think you'll feel a lot more optimistic when you read the 2016 issue.

http://www.washingtonpost.com/wp-dyn/content/article/2008/12/06/AR2008120600134.html

[jtwestside]

And now even the NY Times seems to indicate that a bottom has been reached in real estate.  This is good evidence that the bottom was actually about 6 months ago.  Anyway, here is the article:

Is this the same NY Times that just mortgaged it's building to stay afloat? I bet they hope real estate comes back.

http://www.iht.com/articles/2008/12/08/business/08times.php

[RiversideGator]

Good point.   

[jtwestside]

http://online.wsj.com/article/SB122883352344691335.html?mod=googlenews_wsj

Pending Home Sales Decline

WASHINGTON -- A forecasting gauge of home sales dipped in October, but the decline was much smaller than expected.

The National Association of Realtors' index for pending sales of previously owned homes decreased 0.7% to 88.9 from 89.5 in September, the industry group said Tuesday.

Private analysts projected pending sales would fall 3.5% during October. The gauge had gone down 4.3% during September; that's a revision up from a previously estimated 4.6% decline.

The NAR pending sales index, based on signed contracts for previously owned homes, was 1.0% below the level of 89.8 in October 2007. Lawrence Yun, NAR chief economist, said home sales have been steady.

"Despite the turmoil in the economy, the overall level of pending home sales has been remarkably stable over the past year, holding in a generally narrow range," he said.

In its monthly forecast on the industry, the NAR projected existing-home sales at 4.96 million this year and 5.19 million in 2009. That compares with 5.65 million in 2007.

The median price for an existing home is seen at $198,500 in 2008 and $199,200 in 2009. It was $218,900 in 2007.

A month ago, the NAR forecast 2008 sales at 5.02 million and 2009 sales at 5.32 million. The 2008 median price was projected at $198,600 and the 2009 price at $200,800.

The NAR's pending home sales index was designed to try measuring which way the housing market is going in the future. It is based on pending sales of existing homes, including single-family homes and condominiums. A home sale is pending when the contract has been signed but the transaction hasn't closed. Pending sales typically close within one or two months of signing.

By region, the Northeast increased 0.6% in October from September; it had gone down 14.1% since October 2007. The Midwest fell 4.3% in October from September; it had decreased 6.8% since October 2007. The South increased 7.8% in October from September; it had fallen 2.9% since October 2007. The West declined 8.7% in October from September; it has gone higher by 17.4% since October 2007.

[RiversideGator]

Actually, these numbers are good.  A 1% year over year decline in existing home sales indicates that a bottom has been reached in terms of sales volume.  Sales should increase next Spring when sales typically begin to increase for weather reasons and the recovery will then begin in earnest.

BTW, Wall Street was heartened by these numbers:

NEW YORK (MarketWatch) -- U.S. stocks scaled back losses Tuesday as a leading indicator of the housing market proved less dire than anticipated, offsetting disappointment from lowered forecasts at Texas Instruments Inc. and FedEx Corp.

Offering some tentative hope that the embattled housing market could be stabilizing, the National Association of Realtors reported its index of sales contracts on previously owned homes fell 0.7% in October from the prior month and declined 1% from the previous year.

"Though the housing market remains in distress, it doesn't appear to be getting much worse," said analysts at Action Economics.

http://www.marketwatch.com/news/story/us-stocks-trim-losses-after/story.aspx?guid=%7B1F5D47EB%2D2BD8%2D4D83%2D8735%2D5873E02AD373%7D&dist=TNMostRead

[Lunican]

Forbes ranked Jacksonville #1 on the list of America's next foreclosure capitals.

Jacksonville Details

[thelakelander]

Hyde looking at foreclosure relief

According to Forbes Magazine, Jacksonville will be the foreclosure capital of the nation next year. City Council member Kevin Hyde would like to see what the City, and the courts, can to to prevent that dubious prediction from coming true.

“In this area, there are 4,800 this year. It’s a staggering number,” said Hyde.

According to Hyde, one in every 10 homeowners is behind on their mortgage payments and one in every 157 is in foreclosure. And, they aren’t all Downtown or on the Northside or on the Westside. Hyde says that “for sale” sign in Ortega or Queen’s Harbour or on San Jose Boulevard may be someone looking to sell and either move or upgrade. Or not.

“It (foreclosure) is not isolated geographically to any particular area of town,” he said. “If you see a for sale sign, they may be in foreclosure. It’s not income specific.”

full article: http://www.jaxdailyrecord.com/showstory.php?Story_id=51401

[RiversideGator]

Forbes ranked Jacksonville #1 on the list of America's next foreclosure capitals.

Jacksonville Details

I question their methodology.  One of the commenters did also:

How do you guys come up with this stuff? Jacksonville has the lowest foreclosure rate, and lowest projected foreclosure rate, lowest home prices and highest population growth of any city on your list.....Did the writer of this article ever take a business or math class?

[Lunican]

That is probably why it has the highest projected foreclosure rate increase.