The Housing Market Will Eventually Turn Around

Category: Finance, Real Estate.

There are plenty of homes for sale, a record number nationally and perhaps an all- time high in your neighborhood as well.

Even the looky- loos are staying away. But apart from those folks who must move for one reason or another, there just aren t many buyers. The reason is that people are afraid to dive in at a time when they think housing prices may be dropping. The common wisdom is that if the house of your dreams comes along, go for it. That s why most would- be buyers have taken themselves out of the game until prices hit bottom, which could be a mistake for those who plan to stay in their new homes for quite a while. After all, it may not be available six months from now. In all likelihood, you ll make money in the long run, so your best deal could be right now.

As long as you remain in the house, any further drop in prices will be offset by rising prices down the road. That scenario notwithstanding, today, for most people s situation raises the question: How do you know when prices have bottomed out? It s not even easy to spot a trend reversal. It s tough to know the precise moment when prices stop falling and start rising once again. If it was so easy to find the bottom we d all be millionaires. Every economist has his or her favorite indicators.

But there are telltale signs that smart buyers can look for, evidence that the housing market has finally firmed and is about to rebound. A key indicator is the incentives that builders are throwing at potential buyers. Existing home sales are perhaps the most predictive indicator. Once the giveaways start to dry up, he said, it s a sure sign the market is beginning to turn. But it takes some legwork, because the number of homes sold in a given month is just a number. You need to slow everything down by creating a 12- month moving average, " he says. "This takes the seasonality out of the equation. What you really want is a moving average, from month to month.

Add up the last 12 months sales, that s local sales, and divide by 1Do the same thing month by month and you ll get an accurate reading of whether sales are slowing or increasing. Don t confuse this signal with the average number of days on the market, although time on the market is helpful, it s a stat that is too easily manipulated. When the pace begins to quicken, it means sellers are likely to start holding firm on their asking prices, or at least won t be willing to come down as much. After all, when a seller takes his house off the market for a while or switches agents, the clock resets at zero when it comes back on the market. No one reads a local market more accurately than builders. Building permits are an excellent leading indicator.

They have their fingers on the pulse of the market and adjust their businesses according to demand. Public information on mortgage defaults can be gathered from the local recorder s office. When builders pull more permits in a month than they did the month before, then pull even more the next month, they think the market is improving and they want to be ready. If defaults are rising, it means lenders are still being loaded up with foreclosed properties, which have to be put on the market to compete with other sellers. If the number of foreclosure filings is rising, it is a sure signal of prices headed down. And when there s too much supply, prices tend to fall. Foreclosure sales are another indicator.

Lenders tend to dump foreclosures on the market at 10% to 20% below the rest of the market so they can get rid of it quickly. The actual number of foreclosures is the number of filings minus the number of owners who have been able to bring their loans current, at least for the time being. Mortgage rates aren t so much a predictor as an accelerator. But normally, rising rates slow the housing market, and falling rates propel it. This signal doesn t hold up very well right now because of the sub- prime mortgage- market meltdown. The housing market will eventually turn around.

The trick is to know when it does before others do. It may be months or even years in a given locale, but it will turn. Anyone following these five vital signs on a regular basis can nail the bottom pretty closely.

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