CLARKONOMICS: I recently saw 2 headlines on the same day that were really opposites-ville.
“Home prices plummet in most big U.S. cities” one blared. “Home prices post gains at end of 2010” the other one shouted by way of response.
The subhead to the former read, “Prices have fallen to the lowest points since the housing bubble burst,” while the latter article touted, “For the first time since 2005, the average sales price of new and resold houses had a year-over-year increase, rising 3.5%.”
Here’s the deal: The housing market has been a disaster in recent years, even in the markets where it was not. I read The Seattle Times every day and just in the last 18 months, I’ve seen a parade of stories about cratering values in the Seattle metro area that had largely escaped the housing bust. It’s like Seattle is now having the same nervous breakdown that the bubble states had 4 years ago.
The reality is the market is bouncing along all over the country en route to finding a bottom. Some individual markets may even have a little further to decline. But at the same time, a number of markets and submarkets in big metro areas are beginning to see the stirrings of people buying houses. Deals are closing and there is activity.
Housing is incredibly affordable right now. Now, not everyone will qualify for a loan, but if you do, you are in the driver’s seat. I believe we are at inflection point in housing where we’re done for at least a generation or so with the idea of getting rich quick on housing.
The get rich quick mentality in real estate is like the dot.com thing of the 1990s, when IPOs were going from $15 to more than $200 in 10 minutes. That was the news everyday in general interest newspapers, not just the financial press. But those stocks were overvalued. Now the tech composite, which is the NASDAQ, is still only about half of what it was at the peak 11 years ago. People got burned and they’re done with that movie.
It’s the same thing with housing now. The purpose of buying house should be to have a place to live. That’s a stunner, after people were in the “buy and flip” mentality for so long. But there’s great opportunity to buy right now at incredibly affordable prices, with a very reasonable cost per month. Buy what you intend to own for a significant number of years.
On the other hand, if you are an investor looking for rental income, it’s true that it’s a much better time to do it now than it was 5 years ago when everyone was trying to get in the game.
So this is a time that presents opportunity, but not fevered speculation.