WHAT ABOUT THE ‘WHAT IFS’?
Given the ongoing turmoil in the housing and financial markets, many people who want to buy homes are sitting on the fence, either waiting for the market to bottom out or fearing that it never will.
So what is the chance that the market will continue to decline, prices will continue to drop and a home purchased today will be worth less a year from now? Of course, no one can know for sure what will happen a month, six months, or a year from now. Housing is predictably cyclical, but the current housing slump has already lasted longer than previous downturns. Moveover, timing the market is a strategy that rarely works: by the time it’s clear that a market has turned around, it’s too late to take best advantage of the conditions at the bottom.
It’s also important to remember that home prices have not declined equally in all areas. Where housing is concerned, all markets are local and all perform differently. Yes, some markets have seen significant declines, but for the most part they are the markets that had the largest increases during the recent housing boom. Many markets saw modest increases and have experienced relatively modest declines.
Another related issue is replacement value. Home prices are nearing replacement value in many areas and are not likely to go any lower. It’s simple arithmetic. If a builder cannot sell a house for as much as it cost to build it, he won’t build any more houses. Ultimately, prices will increase as inventory declines and demand increases due to growth of new households.