Housing Bust Over?
I have some good news for you. About housing. I know -- hard to believe, but some light at the end of the tunnel for what is most likely your biggest investment.
Two numbers we are focusing on -- both foreshadowed the housing bust back in 2006.
They are: one, the ratio of the average home price to median income. This is a signal of affordability.
Right now that ratio, again, home price to income, stands 13 percent lower than the long-term average. At the peak of the market, the average price was 44 percent higher than the long-run average.So that means more people can afford homes.
The other measure is this: the ratio of rental costs to home-buying expenses. In other words, is it cheaper to rent or own? Right now, that ratio is 15 percent lower than the pre-boom year of 2000. At the peak, housing prices were about 20 percent higher realtive to rents.
Also today, mortgage rates hit a new all-time low of 3.91 percent, according to Freddie Mac. That makes affordability even higher.
So that, fellow homeowners, is good news. Not only can more people afford homes, but many people will now see homeownership as a good deal compared to renting.
You're probably thinking -- didn't prices sink again this year? How can the market turn around so quickly? And, truth be told, we've lost 680 billion in home value this year. But that's less than 2010 or 2008.
News yesterday that a trade group miscounted sales from 2007 to 2010 may also mean good things. The National Association of Realtors' mistake means that the market was even worse than we thought during the bust, and therefore we could be further along towards recovery.
The market, it appears, is bottoming. And that means the next question is this: when will prices start to rise again? Here's where you're going to have to be patient. The folks at Zillow say the nation could be a measly three percent appreciation by 2016.
The way back will likely take a long time -- but it looks like we will be starting on the way back soon. And, that is a little Christmas cheer for homeowners!!