PIC Current

You may have heard that homes are selling very slowly in most of America. Even through sales increased in April for the first time in six months, they are still hovering at levels not seen since 1991.

There are many factors contributing to this weak housing market, including a poor overall economy and a record number of foreclosures on houses in which owners were unable to make payments.

The question some are now asking is: “Has the market dropped as low as it will go and is now the time for me to buy?” The answers are complex and somewhat contradictory.

Most economists believe the housing market still has a bit to go before it hits bottom. On the one hand, prices have goes south over the past year. The New York Times reports home prices dropped a whopping 14.4 percent in March from homes sold a year earlier.

But the situation might still get worse because of:

1. A record number of homes on the market
2. A glut of foreclosed homes joining the inventory
3. A weak economy
4. Tighter credit rules that will reduce the number of buyers.

The smartest thing to do while looking at buying a home is to ask if the property will be a home or an investment. If you plan on staying for the long-haul and putting down roots, then now is as good a time as any to jump in. However, if you are looking at buying a home with an eye toward making quick money on the investment, then you should probably wait.

Put it this way; if you are going to spend 10 or 20 years in the home, then it will almost certainly increase in value over that length of time and provide you with equity many years down the road. In the meantime, you have a home to call your own. A place with pictures hung on the walls, which are painted any color you like.

But if you are thinking current prices are a bargain and will swiftly go up in coming months, then you will probably regret the investment. Many made huge profits off of quickly buying and selling houses in the years leading up to current mess. The profits in some cases were huge. But those days are over and will probably not reappear for several years at least.

There are fundamental problems with the housing market and the economy in general that must be fixed before prices increase greatly. The mortgage industry needs to unload tens of thousands of homes that are empty following foreclosure. Plus, lending requirements will need to be rethought to prevent the abuses of the past few years without shutting out millions of honest workers who want to buy a home of their own.

David Leonhardt has this excellent article in the New York Times that I recommend reading.

See also:

New York Times
Washington Post
Forbes
CNN

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