Is the Housing Market for Real or Just More Hot Air? The News of a Strong Market is not Supported by the Data.
For some time I thought all the talk about the housing market, that is, things are coming back, prices are going up, we will return to the days prior to the financial crisis, etc. was a lot of hot air. Now I am convinced of it.
I admit that prices are going up. I believe that some of that is basically the purchaser and seller thinking that things are back to normal, ergo the pre-2006 period. Existing home sales have come back to the levels common during 2000 - 2002 (thanks to Calculated Risk), but not even close to the 2004 - 2006 period.
New home sales, however, have not recovered to the pre-2006 period (thanks again to Calculated Risk). In fact current new home sales are at levels not seen since the recessions of the 1970s and 1980s.
In addition a recent article on the Washington Post Blog indicates that the expectation for housing price appreciation for the next 10 years has been declining since 2004. The most recent survey shows that the sample of buyers in 4 major metropolitan areas expect an appreciation rate of 3% per year for the next decade. This is lower than the current mortgage rate, not much of a return on your money. As an aside this survey is completed by the Karl Case and Robert Shiller, the same people that bring us the Case-Shiller Housing Price Index.
Below is the results of the annual survey:
A recent poll of real estate forecasters by Pulsenomics showed that experts expect a nationwide house price appreciation of 4.5% in 2014 declining to about 3.3% by 2018. This is similar to the results of the Case-Shiller annual survey of home buyers.
So what is the housing market going to do? The housing market is always local. Some areas will appreciate and others will largely stagnate. But, overall I am not seeing a lot of strength in the housing market. Mortgage rates will increase over time as interest rates increase. Lending standards are going to remain tough. Higher FICO scores and 20% down (except for first time home buyers) will become the standard. Young people will continue to find home buying difficult because of the down payment and because of what they saw their friends and family go through as the real estate market collapsed after 2007.
You should look at the numbers and make up your own mind, but as for me, I am in no rush to buy a home. I think owning a home will eventually become what it should have always been - not an investment issue, but a cash flow issue.