More about the Bottom

I last wrote about the likelihood that we may be at or very near the bottom of the decline in home prices.  I have come across some more evidence in support of that possibility.  HousingTracker reported on February 6th, that February listings for the 54 studied metro areas declined 21% from the same month last year (click here to see the source).   The Tampa area shows an even greater decline in inventory at 32%.  This is very significant because the law of supply and demand will come into play: as inventory declines, prices will increase.

Here is a graph of the data from CalculatedRiskBlog.  It shows data from both HouseTracker and the National Association of Realtors data.  As you can see, the two sets of data track fairly well with the HouseTracker data being more current.

Remember the old adage: buy low, sell high. Let’s get started finding the right home for you before prices start their inevitable upward march.  Give me a call – (863) 698-2345.

Home prices at a bottom?

The top story in today’s business news is that home prices are mostly back to 2000 levels. This is based on the widely followed Case-Shiller Index for November, which was released January 31.  The Case-Schiller Index is based on national averages.

Below is a graph from the well-respected economic blog, Calculated Risk.  To view the source, Click here.  The graph backs up what the Case-Schiller Index tells us:  there has been a decline in home prices relative to rents.  In fact, the graph shows that the ratio of home prices to rents has, which is the blue line, declined to the levels experienced in 2000.

This is very significant. I believe that the price-to-rent ratio will set a floor on the decline in prices.  At some point, mortgage payments become  less than rent payments for an similar house. This attracts buyers.  The price-to-rent ratio that we are now experiencing may signify we are at or near the bottom: it may be cheaper to buy than rent. The graph below illustrates the point.

Here is an explanation of the graph, which was created by the writer of the Calculated Risk blog. The Bureau of Labor Statistics publishes an “owner’s equivalent rent” index. CoreLogic publishes an index of home prices.  In the graph above, the home price index from CoreLogic is divided by the rent index from the BLS. The result is a price-to-rent ratio, represented by the blue line; January 1998 is the base year and is assigned the value of “1″.

You can clearly see from the graph what has happened since the peak that occurred in 2006 and where we are now in terms of home prices. At the point when it becomes cheaper to buy than to rent, I believe demand to buy and own will increase. When demand increases, prices will rise. This is absolutely inevitable and immutable in our free enterprise system. It is basic Economics 101 in its truest form, without embellishment.

Now is the time to buy, before prices start to increase significantly. I am ready and armed with all the information and tools you need to buy wisely and well. Call me! I am eager to go to work for and with you.