Home buyers and sellers on when prices will rise
Along with all the other things that buying a home represents, it's an act of faith that the purchase will be a good deal. No one plunks down their hard-earned cash at the settlement table and says, "Boy, what a lousy idea this is!" (Well -- very few, at least.)
But there are apparently a lot of buyers going in with the expectation that home prices are not poised to start rebounding in the immediate future.
Century 21 said this week that it polled first-time buyers, and 48 percent of them said they think prices will rise over the next year. Which, if my mad math skillz are not failing me, means 52 percent think prices won't rise over the next year at the very least.
First-time sellers, Century 21 said, are slightly more optimistic. Fifty-three percent expect prices to rise within the next year.
Here's a discussion point: If you think prices have farther to fall, does it make sense to buy now? When do lifestyle considerations (like, "I'm so sick of leases") outweigh financial considerations (like, "Buy low, sell high")?
Other tidbits from the Century 21 poll:
--84 percent of first-time buyers say they're aware of the $8,000 federal tax credit for first-timers, and 64 percent of those in the market to buy for the first time say they qualify
--Just as many first-time sellers say they're aware of the $6,500 credit for repeat buyers who have owned their homes for at least five years of the last eight, but just 33 percent say they qualify
Here, weigh in on prices in this just-for-you Wonk poll:
Sign up for the At Home newsletter 
Comments
Back before the housing boom, there was always one KEY QUESTION to answer in deciding to buy or rent. In addition to having one's finances in order and not buying more than one could afford, the key issue was this: are you going to stay in the house for a MINIMUM of 5 to 7 years. If the answer was yes, then you bought. If the answer was no, then you kept renting.
During the boom, this logic was *completely* thrown at the window as everyone just expected to be able to sell whenever they wanted for an amount that returned all their transaction costs, PLUS a profit. Now that the boom is over, and now that the bust is almost over, I think we might start to return to the old logic.
My best guess is that prices around here (broadly) will be pretty flat for the next 18 months or so, and then (if the economy improves) we'll see small increases in prices in future years. But given how small those increases will be, it will still only really be financially smart to buy if you plan to stay in the house for a long enough period of time to build REAL equity - i.e. equity built by paying down your mortgage, not by having prices leap upward. And you don't get that kind of equity in the first couple of years, and you don't get enough equity to cover transaction costs unless you stay in the house for a good long while.
As long as you are careful to not overpay (lots of houses still aren't priced right), then I think it's not a bad idea to buy in this market today if you know you'll be in the house in 5 years. If you can't be sure about that, keep renting. And anyone who decided NOT to buy right now will not be regretting the decision (based on market factors) in 12 months.
Posted by: fronesis | April 24, 2010 12:55 PM
By rising do you mean in real or nominal terms? Do you mean at the rate of the longterm post WW2 trend line or the 2000-2006 boom trend line?
Depending on how much the Fed decides to funnel through Treasury to Fannie and Freddie, and if the doves prevail in the brewing internal fight on when to sell the mortgages it bought up over the last year, we could see small nominal growth starting right now.
If the doves prevail you will see inflation to the point that real increases are eroded. If the hawks prevail you will likely have a further nominal decrease given that every 1% increase in interest rates cuts affordability by about 10%. Those who were buying 250k houses at 5% are buying 225k houses at 6%.
My money's on the doves for at least the next year.
Posted by: Josh | April 24, 2010 1:58 PM
Once distressed sales, short sales, and unemployment drops off, average housing prices will increase.
Too many people have this notion that there is some inherit value for housing. This is usually in the form of people from the county gasping that someone would pay so much money for a townhome in the city. That the burst housing bubble is some "correction" to the "real" cost of housing.
It isn't.
The drop in prices was first due to massive amount of foreclosures, short sales and other distressed transactions. This averages out home prices to be much, much lower and undercuts non-distressed sales. It was further aggravated by 10%+ of the population being unemployed.
When people have jobs again and distressed sales taper off, you will see housing prices go back up real quick. Those people who bought houses in 2006 are sitting in the shadows waiting to sell their inventory at the price they want.
Posted by: Matt | April 24, 2010 8:05 PM
Josh, by "rising" I meant in the simplest way -- no longer falling or stagnant. Just starting to head up in nominal terms.
Posted by: Jamie Smith Hopkins | April 24, 2010 9:11 PM