My New Blog

Are we still in a housing recession?  It appears so.  However, markets are starting to see signs of life. That means the window to get the best buys will soon close.

The California Association of Realtors most recent report notes that state-wide inventory is going down from 11 months on hand a year ago to 9 months. That's faster than the national average, which has climbed to 11 months, according to the National Association of Realtors.  Have you heard the old saying, "as goes California, so goes the nation".  It is time to take a good look at what may be occurring in the state.

The reason sales are slowly turning around is that smart homebuyers recognize that prices will recover and they would prefer to benefit from the next boom than have someone else benefit. 

Does anyone remember 1991 when home prices crashed more than 12 percent, according to economist Robert Shiller?  By 1992, inventory had built up to 8.5 months on hand. Only a year later, inventory reduced to 6.2 months on hand. By 1995, a buyer's market was in full swing, with only five months of inventory on hand.  To put that in perspective, even at the top of the housing boom in March 2005, homes on hand never dipped below four months on hand.

It gets better. In the four-year recovery period between 1992 and 1995, home prices rose $38,225, or 39 percent.  Residential real estate rose 20 percent between the volatile years of 1990 to 2000. After that, it doubled through 2007.

Is it different this time?  It doesn't appear that way so far.  With home prices eight percent below a year ago, or 15 percent below if you prefer Shiller's numbers, buyers are starting to think strategically. Why? Because busts never last either.

While inventories are at near-record highs, low interest rates and lower prices are making home ownership irresistible again.  And we all know what happens next.  Buying begins.  Smart buyers know to buy on the news and the worse it is, the better price they will get.  Inventories will be lower and lower inventories are invariably followed by higher prices. 

Once real estate prices turn around, buyers will be on the road to equity building, they will be in a better house and they will have an interest rate at a record low level. 

That's why homeownership is a long-term strategy.  With inventory decreasing from 11 to 9 months, it is time to take a good look.  Look back at 1992 and ask yourself, do you want to take advantage of the next wave of equity building or do you want someone else to have it?