Housing Market Bottoms 2009 - 2011: When Will You See the Bottom?
These are some of the most common questions among home buyers right now. It's easy to understand why. Home prices have been dropping consistently (and often significantly) in most cities across America. In some places, like California and Florida, the housing market has tanked. There's just no other word for it. Homeowners are finding themselves upside down in their mortgage loans, and record-breaking foreclosures and buyer shortages are depressing values even more.
So everyone wants to know: For Pete's sake, when will I see the housing marketing hit bottom and begin to recover in my area? Will we see a bottom later this year in 2009, in 2010, or even later in 2011? Let me start with the obvious. Nobody can predict when, exactly, the housing bubble will hit bottom in a particular area. After all, we don't have crystal balls or magic tea leaves to read (though some "experts" seem to act that way).
With that being said, it's possible to look at a variety of economic clues and make a general prediction for housing market trends. This is what the folks at Moody's do through their website Economy.com. In fact, they recently published a report that predicts when housing markets will hit bottom in metropolitan cities across the United States.
If you want a more basic (and more affordable) look at housing bottoms and when they might recover, check out the latest edition of Money magazine. In the April 2009 issue, they've created a series of maps that show a three-staged series of recovery.
The first map shows metropolitan cities that will recover by the end of 2009, across the United States. These are cities that never saw a big bubble to begin with. These will be the first housing markets to hit bottom, and some of them already have. Some never even dropped at all. These areas include many cities in the Carolinas and Texas.
Their second map shows a variety of cities that may start recovering next year, during the first half of 2010. These include markets that experienced a slight bubble / burst, but have already gone through much of the normalization process. Chicago is a good example of this kind of housing market.
You can probably name many of the cities that appear on the third map, recovery coming during the end of 2010 or early 2011. These will be the last housing markets to hit bottom, and they include the cities that had the biggest (and least justified) pricing bubbles. You can chalk up most major cities in California and Florida on this list, along with NYC.
What a Housing Bottom Means to You
So what does all of this mean, anyway? How does the bottom of a housing market affect you directly? Many of our readers find all of this confusing, and therefore have a hard time applying it to their own lives. Here's a quick guide to bubbles and bottoms, and what they mean to you as a home buyer or homeowner.
First, a quick definition. When you hear somebody use the phrase housing market bottom, they are referring to the point when prices reach their lowest level. Within this context, we are talking about housing prices. The term "bottom" is often (but not always) used in conjunction with the term "bubble," which refers to a period of rising values.
Many cities, like those in Southern California and parts of Florida, experienced huge bubbles over the last ten years -- home prices rose consistently and significantly. So in the wake of the housing crisis, these markets had a long, long way to fall. This is why $500,000 homes are now being sold for $275,000, for example. It's also why so many people are underwater in their mortgage loans, meaning they owe more on the mortgage than the home is worth (in the current market).
- For Home Buyers - The bottom of a housing market is the time when you'll get the best deal on a new house. By definition, the "bottom" means prices have reach their lowest point and will begin to rise again. You can't predict exactly when it will happen, but if you buy a home at or near the bottom of the market, you'll enjoy rising home values for a long time.
- For Home Sellers - People selling their homes have to realize that they may never be able to get back what they paid for the home. This is especially true in the cities that had the biggest real estate bubbles. In San Diego, for example, you'll never sell a house in 2009 for what you paid in 2006 -- the market has simply fallen to far. But the housing bottom is also a positive sign for homeowners, because it symbolizes the end of value drops and the beginning of rising values.
Lastly, it's important to realize that the bottom of a market can be short or prolonged. Imagine a capital 'V' next to a capital 'U' -- and pay particular attention to the bottom of those letters. The 'V' comes to a sharp point and then immediately begins to rise again. The 'U' comes to a more gradual bottom, and it stays there longer.
The same is true for housing markets. They might recover slowly or sharply. How quickly they recover will depend on many factors -- economic stimulus, job creation, credit flow, etc. But that's the subject of another article!
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posted by Brandon at
8:14 AM
