When Will the Housing Correction End?
Right now, there is no question I get asked more often than that one. I used to try to break it down and answer it by describing the fundamentals driving the many disconnected corrections around the country.
But, I grew tired of getting the confused hamster stare back at me. So, yesterday, I took a different approach when a co-worker from out of town asked me that question. My response wasn’t planned and I really did it as much out of frustration as anything else.
My answer…
The correction will end when first time buyers can afford to buy.
I stood there waiting for what I thought would be the inevitable follow up question of, “Yeah, but WHEN?”
It didn’t come! Instead, my co-worker looked at me and said, “I understand, we are trying to buy a house but can’t afford anything decent. But, if the trend continues we think we can buy sometime early next year.”
Later on after I had some time to think about the exchange it made perfect sense to me why she understood that and all of the other times it had taken me half an hour or more of interactive Q&A to get to the same point. It resonated with her because it directly correlated with her own 3D experience.
Now, I don’t think I have hit the nirvana answer that makes it intuitively obvious to the most casual observer, but, I do think I have found a major short cut in answering a question that looks simple on the surface but has a vortex of complexities behind the answer.
We’ll see, I get asked this question several times each week.
That is actually a perfectly brilliant answer, simple, to the point, and correct. It also factors in the current mortgage lending mess quite nicely. Up until recently first time buyers could buy houses with little or no down payment and little or no ability to actually pay the mortgage, divorcing the market from reality and resulting in people buying houses far beyond what they can afford and should be buying.
I’m also curious to see how this will play with investors. The US housing market is looking like it could become quite attractive, and when the foreclosures stimulate the creation of an inventory of cheap houses, and growing the population needing to rent. Add to this the added difficulty in getting a mortgage (no more liars loans, I hope). This looks like a heck of a downswing to go buying on (especially if mortgage money is tighter, meaning people will need more hard money). Could this be the perfect storm that allows a lot of wealth to be transferred?
That is a great answer! I hope you don’t mind we plagiarizing it for my use. This is a question on everyones mind right now and this gives a concrete and graspable answer.
Kurt, a lot of wealth is already transferring and at bargain prices. I suspect the next 2 or 3 years are going to be very interesting for investers.
Definitely true, watching the DOW take a hit today, and people seem to think that the US Fed can cut interest rates to make things all better. I think this is going to get ugly when people start realizing that the fed can’t cut rates (the US dollar is already weak enough).