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Gauging where housing market is headed

Published Mon, 8 Jan 2007 12:00:00 GMT
Diverse opinions on real estate future are common

Dian Hymer
Inman News

David Lereah, chief economist for the National Association of Realtors, recently said that the home sale market has started to stabilize and could even turn around by spring 2007. Other economists are less optimistic.

Ken Rosen, a noted real estate forecaster, predicts that it will take about three years for the San Francisco Bay Area housing market to turn around. Leslie Appleton Young, chief economist for the California Association of Realtors, thinks it will take 18 months for the California market to recover. But, in a recent survey conducted by WSJ.com, the Wall Street Journal's Web site, economists by a margin of 2 to 1 predicted that the worst was over for the housing market.

The opinions about the direction of home prices are equally diverse. Rosen sees home prices dropping by about 8 percent in the San Francisco Bay Area and 11 percent in Miami over the next few years. NAR predicts increases in home prices next year. Some think we've already hit bottom; others think we haven't hit bottom yet.

After this cycle is over, we'll be able to look back and pick the point at which excess inventory disappeared and home buyers were back in force. Until then it's anyone's guess as to exactly what the housing market will look like over the next few years.

Diverse opinions about the housing market are not unusual. For the last several years, many economists predicted interest rates in the 7 percent range for 30-year fixed-rate mortgages. But, that didn't materialize. In fact, lower rates fueled a hot market in which home prices rose at historic rates in many areas. This was at a time when most economists were sure that home prices had peaked.

Even though most housing experts would not recommend buying at the top of a market cycle, last years' home buyers bought with reckless abandon, confident that home prices could go nowhere but up. Now that conditions are generally better for home buyers, many are waiting on the sidelines for a clear sign that the market has bottomed out.

Most people feel more comfortable buying when there is a lot of home-buying activity. However, savvy real estate investors take a different approach. They buy when the market is soft and sell when the market is hot.

However, home buying and selling decisions are rarely based simply on whether it's the best time to buy or sell. This is because the "investor" is buying a property that will also function as a home.

Few home sellers who are happy in their current home sell just because the market is strong. On the other hand, no matter how content you are in your home, if your job moves elsewhere, you could find yourself having to sell in a soft market. Lifestyle factors impact home buying and selling decisions.

HOUSE HUNTING TIP: If you have the luxury of picking the time to buy or sell a home, you should first carefully analyze the housing market in your local area. It can be misleading to rely on a forecast that deals with the national housing market, or even a smaller regional market like the San Francisco Bay Area.

There are pockets of strength where demand is high and inventory low even in the midst of markets that are otherwise stagnant or declining. And, some markets like Utah and Washington state aren't declining at all.

THE CLOSING: When you have a grip on local market conditions, you'll be better able to decide if it makes sense to move now or to wait. But, keep in mind that waiting could cost you more if you're a buyer and yield you less if you're a seller, depending on how long you wait.

Dian Hymer is author of "House Hunting, The Take-Along Workbook for Home Buyers" and "Starting Out, The Complete Home Buyer's Guide," Chronicle Books.

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What's your opinion? Send your Letter to the Editor to opinion@inman.com.

Copyright 2007 Dian Hymer

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