On Feb. 19, I wrote about the housing market, and news out of the National Association of Realtors that home prices were starting to stabilize in many markets. The NAR's most recent report showed that 78 U.S. markets experienced growth in the fourth quarter of last year, and existing home sales were up 15.4%.
This was good news: It, along with better jobs numbers, indicated that slowly, the economy is recovering. But now, just a few short weeks later, some signs are pointing toward a double dip. The S&P/Case-Shiller home price index that came out Feb. 22 said national home prices fell 4.1% during the last quarter of 2010. Robert Shiller, the co-founder of the index, predicted that prices have the potential to fall another 15%, 20% or even 25%.
"There are several measures out there -- the National Association of Realtors, Case-Shiller, CoreLogic (CLGX), which follows closely in methodology to Case-Shiller. And then there's the Federal Housing Finance Agency, which tracks Fannie Mae and Freddie Mac loans. Basically, they're showing, in many markets, a return to year-over-year price declines. There are a lot of reasons to believe that in many markets, prices are continuing to soften," says Eric Belsky, the managing director of Harvard University's Joint Center for Housing Studies.
Here's the thing, though: Getting caught up in all of these national measures will drive you crazy. Yes, they're important. They're particularly helpful if you want to sell your home and you're waiting for the value to come back before you put it on the market. They can also give you a rough idea of where the market stands, if you're a buyer wondering whether to jump in. And of course if you're an investor considering putting more money into (or taking it out of) real estate related stocks, those measures matter. So by all means, you should keep an eye on them. But there are several tenets of the housing market that you ought to follow, no matter what:
• Think local. I've said this before, but it bears repeating: You need to look at your local market, not national, state or even, to a certain extent, city data. These numbers are all well and good, but if you're seeing stabilization in your neighborhood (homes are selling faster, for more than they did last year or even last month), it might be time to pull the trigger on a purchase or think about putting your home on the market. On the flip side, if there's a wealth of inventory and a lot of empty homes in your area, it could mean that average prices are still going down. Vacant homes tend to signal distressed sales, because people don't want to pay for a house they're not living in, so they're more willing to price to sell. This can drive home prices down, at least slightly, across the board.
• Take your time. We don't know if we've seen the lowest of the lows, or if this double dip will materialize. That is, of course, the frustrating thing about the bottom: You can't put your finger on it until it has passed. That's why most experts will tell you not to to try to time a market bottom. Instead, take your time finding a house you love in a neighborhood that you'll remain in for at least five years or so.
"We'll always tell you, it's really difficult to time the markets, and it's especially difficult to time when to jump into the market," explains Belsky. " But buyers don't have to have a sense of urgency. Interest rates have drifted lower again, and house prices don't appear to be going up in lots of markets."
• Make sure you can afford it. Home ownership is just one goal among many others, including retirement and a healthy emergency savings cushion (always important, but even more so when you're on the hook for a mortgage). By all accounts, rising gas prices are going to put some added pressure on household budgets. That doesn't mean you can no longer buy a home, but it does mean you might want to take a closer look and make sure all of your wiggle room hasn't been eaten up by the increase. You don't want to stretch yourself too thin. When you buy, you want to be able to afford the home -- and any unforeseen expenses that pop up along the way.
Get info on stocks mentioned in this article: