Cyril Moulle-Berteaux wrote an article for The Wall Street Journal that has been shot round the world by real estate agents and mortgage lenders alike for the last couple days. The title of the article is “The Housing Crisis is Over.” Now you know why agents are touting it so much.
In it Moulle-Berteaux states, “…it is very likely that April 2008 will mark the bottom of the U.S. housing market.” Pretty bold statement, no?
He further goes on to support his position with historical perspective and data based on GDP, affordability, inflation, demand and supply. I particularly like that it is not doom and gloom (yeah) nor does it read like typical propoganda put out by real estate organizations preaching a rosy picture in hopes of getting buyers back to the table. This article makes sense and reflects a lot of what I have been saying for some time; that prices are close to where they need to be, that buyers “want to buy” but that they’re afraid, and that it will be years (he says 15) before we see prices like we did in 2005.
NOTE: there are still a ton of foreclosures and short sales to work through. Until that inventory begins to go down we won’t see any recovery in prices. However, now that prices are close to where they need to be in order to sell we will see buyers scooping up these deals.
Moulle-Berteaux acknowledges that some “experts” claim that we aren’t even close to hitting the bottom in prices but contradicts their postion stating “Many pundits claim that house prices need to fall another 30% to bring them back in line with where they’ve been historically….This simplistic analysis is appealing on the surface, but is flawed for a variety of reasons.”
Basically he counters that these people fail to take into account the power of low interest rates in the absorption of housing inventory. Afterall, we buyers typically want a payment we can afford. If home prices are higher but interest rates are lower then we will buy because we can afford to buy.
And really, wouldn’t you rather spend your money on the home your buying rather than on the interest rate? I’d much rather buy a more expensive home and pay the bank less interest than buy a less expensive home and pay the bank more interest. The only reason one wouldn’t do that is if they were paying a stupid high price for the home and that is not the case today.
I too disagree that prices have to come down another 30%. Here’s why. Let’s say that prices went up 60% over the two year period of 2004 and 2005. And that prices nationally have gone down 10-15% since then (certainly prices have gone down more than that in Maricopa County). So a home that was $100,000 in early 2004 went up to $160,000 in two years and down to $140,000 (I used 12.5%) since then. But don’t forget that historically prices in Phoenix appreciate 5-10% every single year so that $100,000 house in early 2004 would have been worth $140,255 by the end of 2008 (using an appreciation rate of 7%) even if there had not been a “boom”. So the price today after having gone down is the same price as what it had been if there had not been a boom and a bust. If this is true then prices really are where they need to be. Of course, my argument is not an exact science but it does support the point that prices are not too out of wack any more.
Furthermore, the market seems to be in agreement because sales (not prices) are going up. In January of this year 2,907 homes sold that were advertised on the MLS. In February that number was 3,445; in March 4,303; and in April 5,573. So the number of homes sold was 92% higher in April than in January.
IF May numbers are similar then I think we might be out of the woods. Why? Because last year we had a great January, February and March and then the mortgage meltdown hit us and sales plummeted; the rest of the year stunk. But prior to that everything looked and felt right for a recovery. We had population growth in Phoenix, jobs were up and very little real estate had sold in the previous 1 1/2 years so we felt we had pent up demand. Buyers were coming out in droves and many of them were buying. But when the mortgage meltdown occurred all sales stopped. Well, here we are again with great numbers in the first quarter plus of 2008. If May holds true then I expect to have a good summer and we’ll end up with a decent year. Smells like a stabilizing market to me.
Now where this all goes haywire is with high rise and loft condos in Phoenix. I’ll go into detail about that in a future post. Stay tuned.
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