Wednesday, October 17, 2012

Is Now the Time to Buy: Part IV


I track weekly indicators in the housing market so I can best represent my clients. As a buyers agent its important for me to keep abreast of the latest trends and statistics. After-all I only make money when I sell houses. So I want to sell lots of them.

But in order to do that, I need to know what is going on in the marketplace. When and where to buy is often just as important as what to buy.

In the first three parts of this series (Is Now the Time to Buy) I covered some of the key factors for buyers like: the inventory shortages, the affect of supply and demand on rising prices, the shadow inventory, the cost of capital, the 10 year lows in median home prices, and the cost benefit analysis between renting vs. buying vis-a-vis mortgage rates.

This week two more indicators from major media outlets confirm my theory that now IS the time to buy.

CNN Money is predicting another housing boom. According to them: Signs of recovery have been evident in the recent pick ups in home prices, home sales and construction. Foreclosures are also down and the Federal Reserve has acted to push mortgage rates near record lows.

They further cite a recent Barclays Capital report "forecasting that home prices, which fell by more than a third after the housing bubble burst in 2007, could be back to peak levels as soon as 2015".

This makes sense as it coincides with the same 2015 time frame announced by the FED a few weeks ago regarding interest rates remaining at record lows, coupled with the supply and demand pressures that are currently driving up prices, as well as the "inevitable" inflation that the FEDs QE policies will trigger, driving up prices even higher.


A few days later the Washington Post ran a story about how "house flipping" is again on the rise because "a market where home prices are appreciating is much more forgiving for flippers than a market where prices are depreciating", driving a renewed interest in this industry.

Not to be confused with the illegal version which involves collusion, inflated appraisals, and fraud, "house flipping" is a genuine business engaged in by savvy entrepreneurs across the country. Buying, fixing and reselling goods for a profit is as old as apple pie.

For the last few years HUD has yearly extended its waiver against its own anti-flipping rule of 2003, to encourage private investors to help absorb and reintegrate the surplus of foreclosed and otherwise abandoned or unused homes. This waiver expires at the end of 2012 so they would have to renew it again for another year, but I'm betting they will.

Private real estate investors who buy, fix, and sell homes are the perfect mechanism to help banks liquidate their remaining inventories, and the fact that "flippers" are coming back into the market place is a very good thing vis-a-vis inventory (which affects the supply side of the pricing curve). 

However more flippers means more buyers, which means more competition, which means more demand, which means rising prices.

But as I see it we are on the bottom of this upward trend (for a loose comparison buying now would be like buying in 2001 or 2002 before the last housing boom of 2005-2006).

So from my perspective there seems to be more and more evidence pointing toward an increasingly stronger housing market, at least in the short term. 

I still have to answer emphatically YES, now is the time to buy!

As always I look forward to your thoughts and feedback.