In March of 2009 I declared the stock market bottom. Since 4-13-09 the S&P has returned 20%. On 4-13-09 I recommended to buy USB which has outperformed the S&P. Take the profit - Sell USB for a 24% (adjusted for dividend) profit.
I cannot abide with a shrinking market and continued increases in "bad debt" projections, particularly in commercial real estate, which arrived late to the party, now beginning a spectacular meltdown on the front porch. Even boring old Uncle FDIC needs to be "stabilized" with more funding.
Today, I am declaring the bottom of the housing market.
If you are in the market for a home...you've just missed the bottom. Don't despair, as of June 2009, home prices are at the same level as early 2003. With low mortgage rates and an $8,000 tax credit currently available, the market is ripe for buyers... don't delay...
Real estate values are always local. For example, this somewhat nondescript river town (Rockford MN) actually reported in July an increase of 26% in median home sale prices from 2008 to 2009 due to proximity to Minneapolis and relative affordability compared to upscale communities along the "55 corridor".
Of course, those of you aware of the "Lake Woebegon Effect" would understand the residents nodding their collective heads and attributing this success to various factors: "I'm not surprised prices are up...I've always felt this town is just a cut above the rest...We do have a picturesque little community here... :)
To see how other TC Metro locales fared click here and select your city.
To see national housing prices by Case Shiller click here.
Am I recommending to buy a house? Yes! Let me emphasize... YES!! For more than a couple years there have been more sellers than buyers, putting downward pressure on prices. This trend reversed in Q2 2009 and because of the low barriers to entry in purchasing a housing asset (as compared to say purchasing a bank that goes bust or purchasing Reader's Digest out of Chapter 11) prices will adjust relatively fast.
How does one value a house? This is a rough formula but it works. To calculate the "rent yield" take the annual rent cost for a house/condo and divide by the price of a house/condo unit. If the result is greater than mortgage interest rates - The House is Undervalued*! For example, if rent is $1,000 / month and the house costs $100,000 the result is 12%. If interest rates are at 6% the house is a buy. Overtime the market must equalize. There are only three possibilities:
1) The rent must go down. (This has happened already on a minor scale but housing is a non discretionary expense! Seize the captive market - you personally will always demand housing)
2) Interest rates must go up (This will also likely happen but you can fix your rate)
3) The house price must go up. (End of story. I recommend buying things that will go up.)
*Alternate Example"
What could the "rent yield" tell you about the market back in 2006? Back then rent was still a $1,000 / month, the house costed $240,000 and the result was 5%. Interest rates were 7%. Bingo! The House Was Overvalued.
This rusty jalopy of a blog needs a new post to freshen things up.
ReplyDeleteSimilar trends can be seen in Europe as well. Selling prices are down 15 - 25% depending location. But currently selling is already quite good. The bottom of the prices has been reach. In rents prices are still on same level which they used to be when markets were up. So now it would be really good to buy and rent out. Yeah, in case you do not have capital issues (o: I still would not take a bank loan and rent though, too risky for a small boy. In case I'd had all that money I would buy and buy hard, as many apartments as possible.
ReplyDeleteI visited Hong Kong a month ago, prices there are very very high. A small flat in a nice area is 50 000 $ / square foot, happy to live in Finland.