"Feb. 9 (Bloomberg) – U.S. home prices will reach bottom by the end of the year, concluding a slide that will have cut values 36 percent, Moody’s Economy.com said today.
“Notwithstanding the intensifying economic gloom, the bottom of the housing downturn is within sight,” chief economist Mark Zandi said in a statement today. “Presuming we see strong action by policymakers to help support the economy and the housing market, prices will begin to recover by the end of this year.”
Housing prices were inflated for a long time. When you say “bottom” it means in line with an average market.
By no means does this indicate that the housing sector is at the end of the downturn. There is a ton of inventory out there to churn through. In addition, with unemployment reaching unheard of levels NO ONE will be buying homes.
I’m in the east bay of the bay area and for the first time in two years, there are no homes for sale in our neighborhood. The last one sold last week for around $900k. My in laws are also closing on a small place in a retirement community in town (2nd home). I can’t say things are good but there has definitely been improvement with the rate drops.
Up to 2005 data. In the long run, market prices will match demand. So what is housing demand…the supply of housing has to match the demand for housing. Pure demand for housing is 100% related to the # of people who can afford to buy housing, which is related to the population and incomes.
If there is under-supply, then prices go up (shortage). If there is oversupply, then prices go down (surplus). There is an oversupply of housing, caused by an over-demand for housing based on a false level of people who could not afford to buy and did or were going to buy soon. Prices drop and people stop building until demand meets supply. Then prices stabilize and it is then profitable for houses to be built again.
Long story short…prices were too high and going down. Are they correct now, still too high, or in overshoot? Who knows? Only time will tell, as it is based on people able to buy, which is a function of the economic strength. Population too, but unless we have a good plague or world war, then it is fairly steady.
As stated above, it is easy and 100% true. We were overpriced, and now they are falling. Supply = demand. It is super easy. All of the factors that feed into supply and demand make it complicated.
Stupid gimmicks to “fix” housing will only drag out the process of recentering the housing market at it’s correct point. Does it make sense to try and keep some people in their housing that actually have a chance? Perhaps, but people than think that we can keep this problem from actually hurting are probably miguided, IMO.
