Have We Finally Hit the Bottom of the Housing Market?

Fear and uncertainty in the economic and political arena has contributed to a decline in home prices from their peak in 2007. Nationally, homes have lost roughly 25% of their value and in some major metropolitan areas, such as Las Vegas, Reno, Modesto and Phoenix, values dropped more than 50%. The good news is the descent has slowed and home prices appear to be stabilizing. 

When will we hit bottom? No one can accurately predict that; given what’s been happening it’s believed early 2013 will see stabilization and leveling out of home values.

Zillow conducted a survey in which 104 economists and analysts predicted  home values might continue to decline by another 0.7% nationally in 2012 (ask me for copy of the Zillow Home Price Expectation Survey).

Informative as this survey and analysis are, it only takes a narrow snapshot of a homes’ value. There are other crucial elements to considered when discussing value & the bottoming-out process.

The question that must be asked is “What is the bottom and is it really the bottom?”  

There have been several “faux” bottoms such as when the Federal Homebuyer Tax Credit expired. However, according to the pundits, the bottom in home sales really appears to have occurred in early 2009.

Another consideration are those buyers who bought to ‘hold’ their purchases for a long time; stabilization of the market is evidenced by those buyers entering the market; lured in more by unprecedented home values and less by  overwhelming fear their homes’ value would continue to drop. This group includes investors, retirees & second home buyers. This group has been particularly active in the market, with investors & all cash buyers making up roughly 30% of recent home sales.

Another element to factor in are home inventory levels. Currently, inventory levels are at a historic low. The actual number of homes listed for "Sale" has dropped by around 23% year over year; concurrently, inventory in some areas is tight at only 3.5 months of homes available (a typical market has 5 months inventory). This decrease in supply and increase in demand prompts prices to rise & the market to shift from a Buyers to a Seller’s market. Which is a music to the ears to those home owners sitting on the "should I sell now" fence.

There has always been and will always be some geographic variation in home value trends: location, location, location! still rings true; however, it is expected this pattern will be much more pronounced this year with some specific ZIP codes doing quite well while others in the same metro area performing less well.

Once we hit the bottom, sometime in 2013, we’ll rest there for two to four years. After which time we’ll start seeing normal home value appreciation rates of 2% to 4% per year.