Housing Outlook Unchanged

I see many people saying that housing has bottomed and that real estate purchases are on the increase now and our future is bright.  As I posted in November 2009, I see continued downside in housing, and I have not wavered in that view.  


It's not surprising at all, however, that real estate "appears" to be in recovery right now.  Interest rates are at all time lows and can't go much lower, the stock market is rallying with the media having a field day calling an "economic recovery", we have government giving tax incentives for real estate purchases, and there is increasing chatter in the media that the window of opportunity is closing fast on buying a home with rates as low as they are.  It's no surprise that we see a small surge in home buying with those variables in play.


I expect Case-Schiller numbers at or below 100 once the government stimulus programs and tax incentives are done with and we see interest rates return to normal levels. You can't fight supply and demand, we have too much housing inventory built up from the housing bubble and the prices are still too high. Price supports and tax incentives just prolong the agony. Once prices have fallen to a point where we see property management firms sprouting up to acquire properties and convert them into rental units then we'll finally get some stability in the housing market, not before. Right now, we are still in the era of property prices being too high to even break even on rent monies!  You didn't see that before the housing bubble!


The housing bubble has really created a number of beliefs in the American public which are totally false.  The most obvious one is that home prices will always rise.  This has already been disproven, but yet people still think that we cannot have more downside. Go figure.  Housing can go up and down just like stocks.  It's true that it's not as volatile as stocks, but home prices can get ahead of themselves like any other asset. Home prices have still not corrected back to the level of long term inflation, and I believe supply & demand and low consumers savings rates actually predict that we will fall below the inflationary rate in the medium to long term until people start cleaning up their own personal balance sheets.


This is why I'm still not buying a home, even with today's low interest rates.  If I were desperate to get out of apartment living, then I probably would though, because rates are going to rise soon enough. But for now, I'm OK with apartment living.