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Houses Are More Affordable Than They've Been Since 1973
With house prices and mortgage rates way down... poof! We're here. Houses are ridiculously affordable once again. But that alone doesn't mean it's time to buy.
"Cheap, hated, and uptrend" – that's what we look for. It's hard to find all three at any time. We have the first in U.S. residential real estate right now. Houses are cheap. We also have the second... Real estate is hated:
The latest survey of homebuilders suggests they don't expect to sell a darn thing today or in the future... The survey just hit record lows in sentiment. But you probably don't need statistics to tell you sentiment is terrible toward real estate right now. You already know it.
So real estate is cheap and hated. But what about the trend? That's the last piece of the puzzle before we'll consider buying again.
Right now, of course, the trend is still down. It's still terrible. And many facts suggest what you probably expect: We might have another year of "terrible" before we enter what could be five great years in U.S. residential real estate.
U.S. residential real estate typically bottoms right after recessions. We've seen two terrible recessions – one ended in March '75 and another ended in November '82. In those two, new home prices bottomed within two months on either side of the end of the recessions.
We also had a recession that hit real estate hard, ending in March '91. New home prices didn't bottom until a year later in that case.
After coming out of recession, new home prices typically do well for about five years. (The last official recession ended in November '01... Home prices went straight up for nearly four years after that.)
Right now, we're in recession. We could be in recession for another year. Based on history, there's no hurry to buy anything yet. Unless you're desperate, you shouldn't hurry to sell either.
If there's any good news, it's that the speed of the carnage was extraordinary. (We've seen a $50,000 fall in home prices already, and they're down roughly 25% from their highs nationwide.) Now, the factors are lining up for a legitimate bull market in real estate: * Mortgage rates nationwide will hit record lows in 2009.
- The supply of housing is at a level not seen since 1981, so prices will likely fall in 2009. But that will probably make U.S. residential real estate the most affordable it has ever been.
- Meanwhile, real estate sentiment is extremely negative.
- The government has promised to "employ all available tools" to fix it.
- Prices will bottom about when the recession ends.
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