Now that the cabbies are saying the housing market will continue to fall for years, this is probably the end.

For me, the inventory of homes on the market has to drop (and those on the market have to sell in a reasonable amount of time, not like 4,522 days).

The price drops are important to get those houses sold, and there are just too many owners trying to get rid of their places to say prices have dropped enough.

Didn't you write before that an inventory of six months was "ideal" according to the experts? Aren't we still several months higher than that in the Baltimore area?

Hi, Justine -- six months of inventory is what real estate professionals generally consider a balanced market, with neither buyers nor sellers having the upper hand. And yup, we're not there yet in the metro area. It was 8.8 months in September.

Of course, I'm not really asking what has to happen in order for prices to rise or even whether we're close to recovery. Rather, I'm wondering what people would consider a recovered housing market. As in, "I'll know we're back to something like normal when ..."

As regards real estate I'll know we're back to something like normal when the people entering that six months of inventory do for reasons of their own and anticipate an honest negotiation as opposed to a distress situation. Like that?

Sounds good to me, MrRational.

Nice Debbie - great use of the scientific method to reach a conclusion (sarcasm intended).

For me, home prices in line with incomes would do the trick - allowing for cessation of artificially low interest rates, home buyer tax credits, and foreclosure moratoriums.

This, of course, leads us back to pre-bubble 1990's....

Do note though, that I made no mention of what the price level on those properties will be or how restructured employment realities will affect the price:income ratios, nor did I mention inflation or interest rates or even availability of loan money.

Regardless of inventory levels, interest rates, foreclosures, and any other parameter effecting housing, don't expect anything to get better until unemployment gets under control. Jobs fuel the economy and the housing market.

Okay Mr. Darwin. I was making a sarcastic reference to contrarian investing. Fair enough, I should be nicer.

My opinion is that a signal to buy (or sell) an asset often happens when crowd behavior leads to incorrect valuation at certain price points.

I don't buy your median income/median house price argument because it equivocates median income with median income of buyers. And consistent government intervention is less important to me, too, over the long haul (cf. England where there is no tax deduction on MI).

Little Debbie adds fuel to the housing as investment fire: "... a signal to buy (or sell) an asset often happens when crowd behavior leads to incorrect valuation at certain price points."

Little Debbie, to the degree that your preferred perspective has validity... it is limited to the higher levels of residential real estate where the utility value of the "asset" is indeed marginal.

But for the rest of the world where a home still represents the largest purchase and largest portion of accumulated wealth... the median income/median house price arguments will continue to run the show (even without MI deductions or other government policies).

The largest part of the housing bubble problem we've had is based in this latter group being swindled by sharpies into leveraging that far too important *utility value* asset as though it were just one more line item on a brokers report.

Agree - leveraging is just so, ya know, last decade.

Am I the only one seeing doublespeak with this "compared to this time last year" statistic that the economy doomsayers love to use?

Everything is going to look horrible in comparison to last year. The important fact is that home prices have increased month to month for the last four months. This indicates things are no longer moving down, but up. This is something that "compared to last year" statistics hide on first glance.

Matthew, many people focus on the year-over-year numbers -- whether Case-Shiller or other real estate indicators -- because you will see normal seasonal fluctuations in price throughout the year. Some indicators come with seasonal adjustments to try to account for that, but others don't. Thus the reliance on year-over-year comparisons.

Value investing is not restricted to "the higher levels of real-estate." It seems as if you are committing a bifurcation fallacy with your use of "utility."

Again, median income/median house price is equivocal. I thought that this was self-evident, but the elderly who bought 20 years ago that are now on a small pension skew the data significantly. Her paid off 400k house that she lives in on 40k a year doesn't suggest any correction. This happens all the time in Europe, where houses are passed-on, yet the median-income/median-price ratio is substantially more out of whack than Baltimore.

Matthew: No you are not.

Statistics mean NOTHING by themselves and especially as relates to the anomolous nature of the current market.

When thirty distress sales at very low numbers get combined with a million dollar home sale (distressed or not) the AVERAGE price gets distorted upward. Whoop de doo.

There's a wizard behind the curtain working for each of the large banks. We can't see into their books, can't tell what's happened to many of the properties that were in their portfolios, and don't know what new tricks asset managers will be coming up with. I'd argue that "not as bad" is actually worse than where we were a year ago because the amount of transparency has been reduced. The market is not perfect and purely competitive. It's being manipulated more now than at any other time in most peoples' lifetimes. Sure, some of statistical sources are showing improvement, but my personal level of trust is declining. CEO's of some of the big banks are jumping ship which really scares me.

I'll support people calling a recovery when short sale listings go back to being an obscure stunt rather than a common occurrence. I think that's the most reliable method of tracking the health of the market right now. The less short sales means the less people losing their jobs, being bankrupted by medical bills, or drowning in debt.

I look at my own neighborhood. I have lived here 5 years. During the bubble years houses sold within 1 month. Up until last year houses stayed on the market 4 or 5 months. This year has been awful. The same homes stay on the market 6 mos or more - several have switched to "Off Market". Only one sold in 4 mos this year but they sold really cheap. One house just went to Under Contract today after about 5 mos. I consider this year to be my neighborhood's "bottom". This year a Short Sale and a Foreclosure house appeared on the listings which has never happened here before. I hope houses sell faster next year and I will know for sure.

I just refinanced so I plan to stay at least another 2 years. Hopefully this mess will be over by then!

Have to agree with Darwin. Affordability, no matter how it comes to market, is the key to getting houses sold. Doesn't matter if they are individual or bank owned. The basic rule for housing is the value cannot truly rise more than the proportion of income, since housing is not like other necessities where you have alternatives. You can always choose other paper towels, drive less, etc if those prices go up more than you are willing to pay. Once you get a mortgage you are stuck with it. See young retired athletes and actors/actresses on poor money management; it usually relates to houses and other tangible assets.

The problem the country has is we have become an asset/investor based economy over the past 30 years instead of an income/wages based economy. Hence the borrowing options available to make up the difference in what you earn now versus should have earned. The spreads are too far out of whack now, so they have to go back in line. This means income has to drive the price, not the other way around.

I guess the key question is how do you define recovered? Break even? +/- 2% of outstanding debt? More/less? Recovered for the buyer or seller? I would consider the market "recovered" when (1) people look at a home as a place to live and not an investment that is supposed to make money. (2) Let the investors lose; if they were so smart in the first place they/we wouldn't be in this situation. The government should quit trying to prop up/maintain prices and let the market go where it wants. The investors can stop this if they would just write-off portions of the debt for homeowners and move on. They can do this, but would rather have the taxpayers foot the bill, which we are doing now.

Great comment Matthew. I hate the "comparison to last year" talk. Month over month is much more useful to me. To exclude other factors, I really like the 6 month inventory data point as a sign things are getting better.

M: if the six month number included the properties that need to be sold but continue to be (strategically) held back from the market...

Until then it is and shall remain just one more of the many meaningless and distrusted "statistics" that get thrown around like bread and circuses until well after the dust has truly settled. (2014?)

You question implies that 2006 peak levels were " normal, " when, in fact, normal would be 2000 prices, plus 4% - 6 % annual appreciation. I think it will take the elimination of the home buy tax credit, and banks putting all of their foreclosures on the market in order for the market to correct itself.

Oh no, side line guy, I wasn't implying anything about 2006 prices. I'm only asking people what ~they~ define as getting back to normal or "market recovered." (No doubt some people, especially those who bought at the peak, won't consider the housing market recovered until they can sell without taking a loss.)

sideline guy: 1999vs 2000? who really cares... but 4-6%? now we have an issue to quibble over.

I'm willing to concede a 2.5%-3.0% average appreciation on top of 1999 price levels and even to describe the resulting number as a starting point to discuss specific areas and properties. Others, such as Mr DarwinRules, would object to any appreciation rate uniformly applied and perhaps even having one applied at all.

When we do get around to discussing specific properties appreciation it is important to have that starting point for negotiations that reflects sanity if not some curmudgeonliness (some will be worth more, some less for reasons independent of the RE).

When would I say we are back to normal?

When the following factors come back into a normal range:
Days on market
Percentage of REOs to non REOs
Sold vs expired and withdrawn