Housing Bottom?

As discipulus mentioned in an earlier post, existing home sales actually increased in February. This unexpected increase seems to be a consequence of falling home prices. According to the National Association of Realtors existing home prices fell 8.2% from a year ago. I would submit that the "biggest ever" falling prices represent the continued "shakeout" of the housing market because of the biggest ever real estate bull market. This price depreciation is likely a short-term effect of the housing bubble(Not to say we have reached stabilized prices). The Federal Reserve's actions to lower interest rates will likely stabilize home prices within the next 6 months as easy money returns to a housing market near you. The moral of the story is that for those of us that bought our houses as a long-term investment need not fear.

The media and Hillary are focusing on falling home prices and "negative equity", which is when the value of a mortgage is worth more than the value of the home. In doing this the media assumes that the vast majority of Americans have purchased their homes in the past 5 years and is therefore a systemic issue. I am looking for data to support the hypothesis that in fact all 300 million of us didn't purchase a home in this time period so we'll see what I find (common sense tells me that my 8 year old nephew didn't qualify for a home loan--The MSM seems to think he did). Just as any investment, the value will fluctuate over the short-term and has a near 100% probability of gaining value in the long haul. Assuming that the housing market return is normally distributed there will likely be a reversion to the mean that is positive in the long run.(Warning: Don't read this if the phrase 'normally distributed' conjures up images of your college stats professor. If you follow the jump you will see a normal distribution curve. The middle of this curve represents the arithmetic mean. Anything to the right is extraordinary return and anything to the left is extraordinary loss. In the context of the our recent real estate boom we moved to the right of the peak or mean. Currently, it seems we have moved to the left of the mean after a long period of above normal return. The effect is that a normally distributed return will revert to its mean or its long-term average.)

For those long-term investors in the housing (either through their primary residence or an investment property) sector the current market condition will have no bearing on the future value of your home. With that being said, those long-term investors that are looking to sell now will get a much lower price than 2 years ago but you have still seen an overall increase in your home value in the past 5 years. This is evidenced by the increase in housing wealth from $14Trillion in 2002 to $21.5Trillion in 2006.