Is the Housing Bottom Finally in Sight?

home prices
home prices

By Jerome Idaszak

Housing prices will stop sinking next spring. But recovery will be a gradual process -- too slow to help the economy much next year. Look for prices, which have fallen an average of 31 percent since 2006, to drop an additional 2 percent or so in the early months of 2012 and then recover that lost ground by the end of the year.

The growth in 2013 won't be dramatic come 2013, expect home prices to rise only 3 percent to 4 percent -- not too far from the pre-boom average of 4.8 percent a year, but well short of the bounce that usually follows a housing slump. After the milder housing downturn in the early 1980s, home prices grew an average of 6.5 percent for six years.

A key signal that the bottom is near: A change in the ratio of average homes prices to personal income -- houses are affordable again. After soaring to 4-to-1 during the housing boom, the ratio is now well below the long-term average of 3-to-1.

Another reason for optimism: Foreclosure numbers are set to level off after a recent surge to clear up the backlog that developed when banks were found to be rushing though the paperwork for seizing homes. Although the 3.5 million foreclosures still in the pipeline are weighing heavily on the housing market, that effect will diminish when it is clear that the worst has passed.