By almost all accounts, the very first sign that something serious was wrong in the American economy was the housing market. While some economists and strategists don’t want to officially call it that, I think it is fair to say that there certainly was a housing market bubble back in the 2004-2005 time frame. What constitutes a housing market bubble? Rapid increases in valuations of housing and real property until they reach levels that are unsustainable. I think it’s fair to say that we saw prices reach levels that were unsustainable and that is part of the reason inventory is so high now and valuations have plunged by as much as 50% in some cases.
Fast forward to today, where every new housing number that comes out is a very ugly one, and most of them continue to set a record for the worst monthly number ever. In fact over the last twelve months the Case Shiller Home Price Index showed that the average home lost 18.2% of its value. The value of the average house in America has now dropped for 28 consecutive months, beginning with August 2006.
Now the economists are frantically trying to call a bottom in housing prices and play hero in this terrible economy. Many are expecting the housing numbers to weaken over the next few months, but not quite as quickly as they have in recent months. There are some analysts who believe 2009 will prove to be the bottom for the housing market and that housing will help the economy in 2010 and thereafter.
The fact of the matter is this: the problems in the housing market didn’t arise overnight and they won’t be fixed overnight either. I think that all American should understand that even as the housing market tries to find its legs, it is extremely unlikely that demand for homes will skyrocket anytime soon or that valuations will jump quickly. More likely is a scenario where the housing market bottoms and then bounces around the bottom for quite some time as it waits for the stock market and the economy to straighten up. I don’t think we can count on the housing market to pull us out of this recession.
If someone tells you the time to buy a house is today that is fine, because prices today are quite good. On the other hand if someone tells you that you need to buy that house today or it will likely skyrocket in value over the next few months, you should know that they are just being a pushy salesperson. The housing market will obviously bottom out at some point, but don’t expect the rebound to be fast and furious.
