Technology TransactionsRealty Viewpoint: Guess What? Equity Recovers
The good news is we"re still in a housing recession. Why? Opportunity. Even better news -- the worst markets are starting to see signs of life. That means the window to get the best buys will soon close.
The California Association of Realtors most recent report notes that state-wide inventory is going down from 11 months on hand a year ago to nine months. That"s faster than the national average, folks, which has climbed to 11 months, according to the National Association of Realtors.
Even foreclosure-heavy Detroit is sporting better numbers -- pending sales have increased 26 percent says RealComp II, a broker-owned MLS.
The reason sales are slowly turning around is that smart homebuyers recognize that prices will recover. They"d rather benefit from the next boom than see the current seller get it.
Think about it. When have you ever seen housing retest previous lows? This past year is the first in decades in which housing prices went lower. Typically, housing prices beat inflation by one or two percent
The 2007-2008 housing recession is an anomaly. You"ve seen housing prices retreat as far back as 2004 in some locales, but you don"t see them retreating to 2000.
In 1991, home prices crashed more than 12 percent, according to economist Robert Shiller. The NAR said housing prices gained by $5000 over 1990.
By 1992, inventory had built up to 8.5 months on hand. Only a year later, inventory reduced to 6.2 months on hand. By 1995, a buyer"s market was in full swing, with only five months of inventory on hand.
To put that in perspective -- even at the top of the housing boom in March 2005, homes on hand never dipped below four months on hand.
It gets better. In the four-year recovery period between 1992 and 1995, home prices rose $38,225, or 39 percent.
But this time it"s different, isn"t it? No. It isn"t.
Residential real estate rose 20 percent between the volatile years of 1990 to 2000. After that, it doubled through 2007.
But like all booms, reality sets in, and resistance to price becomes an issue.
With home prices eight percent below a year ago, or 15 percent below if you prefer Shiller"s numbers, buyers are starting to think strategically. Why? Because busts never last, either.
With still near-record inventories, low interest rates and lower prices are making home ownership irresistible again.
And we all know what happens next. Lower inventories are invariably followed by higher prices.
Smart homebuyers know to buy on the news and the worse the news is, the better price they"ll get. They"re willing to take a short-term equity hit because they still get terrific tax subsidies in the interim. Once real estate prices turn around, they have both. Plus they"re in a better house.
That"s why homeownership is a long-term strategy.
Ask yourself -- do you want the next wave of equity, or do you want someone else to have it?