The housing market peaked six years ago. That's when my son—who has been out of college and working for two years—was back in high school. How long can a housing bust last?
There are some signs that the market is slowly getting better, if only at an uneven and halting pace. And that's good news for everyone. Both buyers and sellers benefit from a healthy real estate market, ideally with a slow and consistent rise in prices. Owners can then enjoy the profits from selling their homes, while buyers can have some confidence that their investment will pay off in the long run.
But there is certainly no clear view of the future of real estate. The horizon is nothing if not hazy. Here are the pros and cons to consider regarding the current housing market:
Pro: In January, sales of previously owned homes reached an annual pace of 4.63 million units. That represented the third time in four months that sales had gone up, and it left the inventory of current home listings at just 2.3 million units, down from a record high of 4 million units in the summer of 2007.
Con: But home sales in February were slightly disappointing. They dipped by 0.9 percent from January, to a seasonally adjusted level of 4.59 million.
Pro: Still, the February numbers represent an increase of 13 percent from six months ago. And the winter of 2011 and 2012 saw the best winter real estate market in five years.
Con: One reason sales were strong was simply because of the weather. A mild winter in most parts of the country brought out buyers in higher-than-normal numbers. But the strong winter sales may have just pulled buyers forward, and could result in a weak spring market.
Pro: The slowly improving job market, as well as record low mortgage rates, have also contributed to a better real estate market. Lawrence Yun, chief economist with the National Association of Realtors, argues that recent gains show buyers are responding to favorable conditions. “The uptrend in home sales is in line with all of the underlying fundamentals—pent-up household formation, record-low mortgage interest rates, bargain home prices, sustained job creation, and rising rents,” he says.
Con: Well-respected economic forecaster A. Gary Shilling predicts that we likely have another 20 percent decline in prices ahead of us, due to a faltering economy and the overhang of housing inventory coming from distressed owners.
Ultimately, the choice to buy or sell a home is more of a lifestyle issue than an economic one. Owning a home ties you down. We all know older people who have been stuck for the last few years, wanting to sell their house so they can retire to a sunnier, less expensive region of the country. And we all know younger people who have no desire to take on the responsibility of a house, when they might want to drop everything and move cross country to take a new job.
Yet owning a home still offers many advantages. The mortgage and real-estate taxes are tax deductible. You can decorate to your own taste, and improve for your own needs. And home ownership places you in a community. It provides a school system for your kids, and gives your family a stable lifestyle.
Although the risks of home ownership have become more visible in recent years, the pros and cons have not changed much over time. The market goes up and down. You can make money. But if you're forced to sell you can also lose, big time. Is that better or worse than forking over a third of your salary to your landlord, only to end up years later with nothing to show for it?
It's a decision you have to make for yourself. But since the facts haven't changed all that much, perhaps the old rule of thumb still applies. If you're going to move in the next few years, it's better to rent. If you're settled down, especially if you have children, you're likely better off buying a home.
Tom Sightings is a former publishing executive who was eased into early retirement in his mid-50s. He lives in the New York area and blogs at Sightings at 60, where he covers health, finance, retirement, and other concerns of baby boomers who realize that somehow they have grown up.
Reader Comments Read all comments (2)
dawnwilliam874 of CA 1:18AM May 11, 2012
johnleonz of TX 7:05AM March 28, 2012