Housing correction may already be ending
After five full years of a real estate market “boom” which saw sales and prices inflated to unimaginable highs, the slowdown or correction began just about a year ago (end 2005 or beginning 2006).
Just when prices started to form a similar pattern of the record-breaking sales declines, there is now report that the housing correction may be ending which will lead prices to inflate once again.
Lew Sichelman’s October 11, 2006 article, “Real Estate Market Downturn Nearing End,” posted on Realty Times, provides potentially exciting news once again for sellers, while buyers may have to change their thought process and buy what they can.
“When will the housing market reverse gears and start moving upward again? That question is on everyone's mind, from nervous sellers to wary buyers, from anxious realty professionals to eager builders and developers.”
Irvine, Calif., real estate consultant John Burns suggests that a turnaround is likely much sooner than originally expected, at least in higher profile markets. And some markets could experience this reversal of fortune by the end of the year.
“Burns sees a stable housing market as three-legged stool, he told his clients in a recent newsletter. One leg is demand, represented by the number of would-be buyers. Another is supply, or the number of active sellers. And the third is investment, which he defines as a mixture of affordability, consumer confidence and speculative activity.”
So far, the demand leg is the only one with a solid foundation, Burns said. The supporting demographics suggest that there is a healthy demand for several years yet to come.
“Demand is our primary hope for avoiding a crash landing,” Burns said.
There are many skeptics that contest that home prices are falling at a crashing pace. But Burns rebuts by stating that although prices are dipping, people are not worried about losing their jobs and new jobs are actually increasing every month.
The supply leg is going to need between two to four months for a complete correction. The amount of unsold listed homes is currently at an all-time high. Once the supply begins to deplete will be an indicator that the market is close to rebalancing itself.
“The supply problem will be resolved when the market returns to 2.5 months of supply in the resale market, and only a few standing units of inventory in a typical new home subdivision,” Burns said.
Economic growth will play a dominant role in determining which markets recover the over-supply issue sooner. Concentrated areas such as San Diego look to regain balance quicker than more spread out, sprawling, areas such as Phoenix.
“According to Burns, the investment leg of the stool is the wild card. Demand is strong, just not at current prices, he says. ‘Affordability is an issue in the major markets, but not everywhere.’”
Although affordability is low, consumer confidence remains strong. This can be related once again to the fact that people are secure with their employment.
“But speculators remain a bugaboo. At the height of the market, Burns says, ‘an unprecedented level of investors created 40 percent more sales activity’ than should normally have been created. Now, we have to wait and see how they will react. Will they hold until the market turns more favorable, or will they panic and sell at any price just to be over and done with it?”
Basically, the market fall or rise can go either way but a housing crash seems very unlikely.
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