Tuesday, February 7, 2012

Housing has Bottomed Out

Or so says Calculated Risk who has a couple of nice graphs to help make his point:

Both of these graphs suggest that we may have bottomed out on the construction side, but what about prices?  Here is CR again:

There are several reasons I think that house prices are close to a bottom. First prices are close to normal looking at the price-to-rent ratio and real prices (especially if prices fall another 4% to 5% NSA between the November Case-Shiller report and the March report). Second the large decline in listed inventory means less downward pressure on house prices, and third, I think that several policy initiatives will lessen the pressure from distressed sales (the probable mortgagesettlement, the HARP refinance program, and more).

Of course these are national price indexes and there will be significant variability across the country. Areas with a large backlog of distressed properties - especially some states with a judicial foreclosure process - will probably see further price declines.

And this doesn't mean prices will increase significantly any time soon. Usually towards the end of a housing bust, nominal prices mostly move sideways for a few years, and real prices (adjusted for inflation) could even decline for another 2 or 3 years.

I think he is essentially right. We do seem to have hit the bottom but there are a lot of factors that will keep a lid on prices for some time: unemployment, foreclosures, uncertainty, tight credit, etc. But I would not be surprised to see 2012 end with modest gains in average home values as measured by Case-Shiller. And I think Portland will be one of those areas in which we will see improvement by the end of the year.

I think the thaw has begun.

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