Are House Prices Are Finally Nearing A Bottom?
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Since the beginning of the house-price crash in 2007 almost every analyst has predicted that “the bottom” in house prices is just around the corner. As you know they were wrong every time. But maybe now, finally, it looks as though house prices may actually be nearing a bottom.
Why you ask?
Well it is being reported that after falling nearly 35% from their 2007 peak, nationwide house prices are finally approaching “normal” levels on two key valuation measures: The “price-to-rent ratio,” which measures house prices relative to what the houses might rent for, and the “price-to-income ratio,” which measures house prices relative to average incomes.
Economists at Goldman Sachs, using the first ratio have concluded that national house prices will decline another 2.5% in 2012 and then possibly bottom over the course of the following year.
As we all know house prices differ markedly depending on where you live. The report by the Goldman Sachs analysts have considerably different predictions for different markets. Prices in New York, Portland and Atlanta, Goldman predicts, will still see significant declines. While prices in Detroit, Miami and Cleveland should rise.
Most importantly, after a price bubble similar to the one the U.S. just experienced, prices often don’t stop at “average” levels on the way down. They often plunge straight through “fair value” and spend years below average levels. And that certainly could happen to house prices this time around.
The report states that they believe house prices will level out in a year or two. Keep in mind that even if house prices do bottom in 2013, that doesn’t mean that they’ll quickly shoot up again.