CLARKONOMICS: A new report from the National Association of Realtors (NAR) has added another layer of gloom to the housing market. But I don’t think you should take it as doom and gloom.
The NAR says home sales dropped by almost 10% this past February versus the same period a year before. The group’s report also found that median home price dropped to the lowest level in 9 years.
Think about the irony of this. We went through the same thing with the stock market, where stocks went through a 10-year period where values went back to where they started 10 years before. And now we’re looking at that same thing with the housing market.
There are so many things I have to say about this, so I’ll try to distill it down to some key points.
First, I believe we are at the beginning of meaningful recovery in the housing market. You can’t interpret the headlines of the day to mean a continuing unfolding disaster in housing. One of the problems we had was excess supply. But now we’ve been through year after year of almost no meaningful new construction. So with natural household formation, and as jobs recover, people will again buy houses.
Second, housing affordability in most of the country is the best that I can recall. I gave you recent numbers about this. As rents are rising in so many places, by comparison the effective cost of a house is a real deal in most places versus renting.
Third, a lot of activity driving down the average selling price is a result of foreclosures working their way through the system. But here’s another angle: One out of 3 homes purchased in the United States in February were paid with 100% cash. Investors are signaling there is real opportunity out there when they take all the cash they’ve got on the sidelines and throw it into housing.
I can give you not a guarantee, but a very strong belief that this is a key signal that recovery is under way. If you felt the stove was too hot in the kitchen, well, you want to go buy the kitchen. Because I don’t think it’s too hot, I think it’s a deal!