How do we determine “at” or “near” bottom?
Your answer, as always, depends upon your local economic and housing market conditions. Real estate is always local. To research and learn your local area, check out newspapers, online news services and industry web sites for a wealth of data that can be used to analyze your local-market trends. CNN is not local.
Five of the best local indicators to consider are:
- Inventories of for-sale homes. A large inventory of unsold homes in any area suggests a weak housing market. Excessive supply and slow sales leads to price decreases. If you’re told that your area has an inventory of 12 months, that means it would take one year for all the homes currently on the market there to be sold. Don’t forget, new homes are being listed all the time, especially in the Spring. High inventory is great for buyers, not good for sellers as they have to lower prices to compete for the qualified buyers.
- Days on the market. In a fast-paced market, great homes in desirable locations sell quickly and that demand causes prices to rise. Homes that sit on the market for weeks or even months, however, cause pricing decline. Just a few years ago, houses that were listed in desirable areas actually created bidding wars. Now, houses sit for months forcing sellers again and again to drop their asking price.
- Pending sales. An increase in pending sales, homes that are under contract but not yet closed, indicates that the pace of sales has quickened. Faster sales suggest a strengthening market which brings on higher prices.
- Builders’ concessions. Builders tend to offer price discounts, free upgrades, gifts and interest rate buy-downs to bring in buyers when the market is weak. A lack of concessions suggests builders have sold off their inventory. That reduces the number of available homes and contributes to market price stabilization.
- Apartment rents. Rising rents suggest an increase in tenants and a decrease in rental vacancies. Cheaper homes and lower interest rates combined with rent increases would lead more renters to buy a home rather than rent. In today’s market with many people losing homes to foreclosure and short sales, the number of tenants is increasing, vacancies are decreasing and rents are on the rise.
Our declining real estate market offers excellent opportunities to buy properties at great discounts. There is, however, the continued risk that prices may fall further. Should you buy now or wait to see if sellers are forced to lower prices even more in the future? Well, obviously there’s no crystal ball to predict but the above list gives some realistic signs to consider.
We now see a large inventory of homes, too many days on the market, not a lot of pending sales, and an increase in tenants. Are we at the bottom? We’re certainly near it. How long will it last? I don’t know how long it will last but indications are that it will be with us for quite a while. My guess is another 3 to 5 years. The first sign that the housing market is going to turn around will be an increase in the job market. How far away is that?
Pay attention to the signs, adjust accordingly, have all the facts you can before you buy or sell and let me know your experience.