What is Going to Bring the Housing Market Back
Anytime home prices have fallen, rental prices begin to rise. We are seeing that more and more every day. I anticipate rental rates in this area to raise nearly $100 per month per year for the next 3-4 years at a minimum. Rents were artificially kept down during the housing boom as it made too much sense just to buy. This also increased the number of “investors”; I actually believe many of the “investors” were more like speculators. When these speculators could not sell the house that they contracted to purchase from a builder at a profit when it was completed, they had to do something. Some of the homes went to foreclosure, while others were rented out at whatever the owner could get in order to avoid having to pay the entire note.
However that excess rental inventory has been worked out of the system. The demand for rentals has risen and the supply has dropped. Thus we have seen a major decrease in days on the market for a properly priced rental property (usually less than 30). We have also seen the rental rates head up again. The higher rents and lack of rental availability combined with FHA loans or VA loans have allowed the first time Buyer back into the market. The entire real estate market is an ecosystem. Once the first time Buyers come back, everything else will begin to function better and better. We are seeing this happening more and more every day. It is impossible to tell where the market has bottomed or will bottom out until after it has happened. However the signs are there that we have either seen it, or are certainly very close.
When owning is as cheap as renting
When the real estate market comes back, it will not be with a sonic boom. It is likely to be subtle, below the public’s radar. The revival will probably begin in the areas hit hardest by the bust: in Florida, Las Vegas, and the honeycombed tracts that flank the broad freeways east of Los Angeles known as the Inland Empire. (Indeed, home sales in Southern California surged 22% from March to April, hitting their highest levels since August.) Why will housing come back? For a reason as solid as floor joists: The entry-level buyer, for the first time in years, is finding that owning a new house is suddenly just as cheap as renting. “Those first-time buyers got locked out by high prices,” says John Karevoll of DataQuick, a research firm that assembles data on the U.S. real estate market. “Now the buying activity that was on hold is starting to come back.”
In hindsight, the reason for the current malaise is simple: too few buyers. By 2007 more and more people were frozen out of the market - especially the entry-level buyers, who now account for as much as 30% of new-home sales. They’re the twenty something young professionals who rent until they get married or the first child arrives, and then reach for the American dream of homeownership. From 2005 to 2006 some first-timers rushed to purchase homes they couldn’t afford with the help of exotic loans. But another big group of young consumers steered clear and are finally looking to buy. Now that prices of new houses have fallen as much as 30% in areas including the Inland Empire and the outskirts of Phoenix, they are returning- prompting a turning point in the housing cycle. Call it the New Affordability.
