Housing: Time to jump back in?

U.S. home prices have dropped an average of 18 percent since July 2006, said Brian Louis in Bloomberg.com. Many experts warn that prices will continue to fall until the market can absorb the huge number of houses already for sale. The supply of unsold properties—11 months for existing homes—is at its highest level since the National Association of Realtors started tracking such data, in 1982. A wave of foreclosures could put even more houses on the market in the coming year. “It’s going to take several years to get rid of all this inventory,” said Eli Broad, co-founder of national builder KB Home.

But real estate is a local game, said Amanda Gengler in Money. “Your region could be in far better shape than the country as a whole.” In fact, prices in a third of all metro areas are now actually higher than where they were a year ago. Don’t try to time the market, but do get a sense of its relative health. Inventory is a key factor, says David Stiff of Fiserv Lending Solutions. A stable local housing market has about a six-month supply of houses for sale, which means houses should sell in about 90 days. A slowdown in monthly price declines is also good news: Look for at least three months of smaller price drops.

The housing bust has many owners reverting to rules of thumb that the boom had supposedly rendered irrelevant, said Peter Y. Hong in the Los Angeles Times. One is the relationship between home prices and rents for equivalent properties. In Southern California, for instance, prices have dropped 30 percent from their high, but still are high by past measures. Historically, a home’s sale price in L.A. has been about 16 times a year’s rent; today it’s 20. Another factor is affordability, as measured by the ratio of home values to homeowners’ incomes. “Los Angeles economist Christopher Thornberg believes that home prices will stabilize when homes are affordable to about 25 percent of the adult population.” In L.A., that would mean a further drop in home prices of 20 percent. “There’s no way in hell the house you buy now will be more expensive next year,” Thornberg says.

Subscribe to The Week

Escape your echo chamber. Get the facts behind the news, plus analysis from multiple perspectives.

SUBSCRIBE & SAVE

Sign up for The Week's Free Newsletters

From our morning news briefing to a weekly Good News Newsletter, get the best of The Week delivered directly to your inbox.

From our morning news briefing to a weekly Good News Newsletter, get the best of The Week delivered directly to your inbox.

Sign up