Real Estate Outlook: Housing Better Than Some Reports Indicate

Written by Posted On Wednesday, 05 March 2008 16:00

If the housing market looks darkest just before dawn, then maybe we're close to dawn. There's no other word for it -- a lot of the numbers this week are just plain ugly.

House prices are down in many parts of the country -- in every state except Maine last quarter -- according to the federal government. Price declines that had been confined to the East and West coasts, have been leaching into dozens of interior markets.

Residential investment was down by 25.7 percent last quarter from the year before -- and that's the sharpest drop since 1987 -- according to the Bureau of Economic Analysis.

Fewer houses are listed for sale now than a year ago, but what's out there still represents a 10 month inventory.

But are all these statistics as uniformly bad as they sound?

Not necessarily. Take existing housing sales for one: From all the gloom and doom perpetuated by headlines suggesting that home sales are at their "lowest on record," the fact is that the current rate of resales is just below 5 million a year -- about 4.89 million according to the National Association of Realtors.

Now 5 million is not the 6 and a half million-plus we saw during the boom years. But it's not chicken feed either. That's a whole lot of houses changing hands, a lot of real estate activity. The market is not dead. It's just in a cyclical downward phase.

And despite what the Associated Press erroneously reported recently, the January 2008 home sales rate was three times higher than the true modern low point of resales reached way back in 1970.

Don't believe everything you read.

What about interest rates? Sure, they jumped by a half a point in recent weeks, but look where they are: 6.27 percent for a 30-year fixed rate loan is lower than it was last year at this time, and by any historical standard, mortgage financing is extremely affordable.

Looking ahead, Freddie Mac chief economist Dr. Frank Nothaft is forecasting a return to even lower rates -- 5.5 percent rates in the months ahead. Combine that with Fed Chairman Ben Bernanke's promise to keep cutting short term rates -- probably another half point at the Fed's next meeting in two weeks -- and you've got the financial fuel for a potential bottoming out and turnaround.

All that's really needed is for consumers to look hard at the deep discounts on prices in their local markets -- and get off the sidelines.

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