Posted by: Marvin Remmich | March 3, 2011

Why 2011 May Be the End of the Housing Crash .

There might finally be some good news this year about the nation’s dismal housing market. Or, at least, the bad news could stop.

Either way, it will be welcome relief for current homeowners as well as for potential real-estate investors. Reasons to be optimistic have been sadly lacking since the housing bubble burst in 2006.

For sure, last week we learned the widely watched S&P/Case-Shiller home-price index fell 1% in December, its fifth straight decline. The index tracks 20 major markets.

[27LEDE] Andrew Roberts

But that figure belies real reasons to be optimistic, according to some experts. If they are right, it might make sense to jump into real estate. The trick is avoiding getting burned again, and it doesn’t necessarily mean owning a home.

First, let’s recap the economic signs a bottom is close.

Houses Are a Good Deal

Housing is the most affordable it has been in decades, according to analysts at Moody’s Analytics. They don’t just look at house prices. They also look at incomes.

Nationally, the cost of a house is the equivalent of about 19 months of total pay for an average family, the lowest level in 35 years. Prices usually average close to two years’ pay, although that varies nationally.

At the peak, midway through the last decade, a home in Los Angeles cost the equivalent of 4.5 years’ pay. The average price has since fallen to just over two years’ income now. That’s well below its pre-bubble average of 2.6 years. This means average Los Angeles homes are cheaper in “real terms” than they were typically during the period 1989 through 2003.

The opposite is true around the Washington beltway, where it will take 26 months of pay to buy a home, versus the historical norm of 22 months.

In the end, it will be affordability that will drive people to buy homes.

“Pricing is down so much in some markets that when you analyze renting versus owning it makes much more sense to own,” says Michael Larson, a real-estate analyst at Weiss Research in Jupiter, Fla.

It is definitely bullish. But what about timing?

“Housing prices will probably bottom in 2011,” says Scott Simon, a managing director at money-management firm Pimco in Newport Beach, Calif. He foresaw the housing crash, helping his firm dodge losses that plagued Wall Street.

Advertisements

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

Categories

%d bloggers like this: