When will the housing market recover?

Hitting bottom… That’s what everybody is waiting for, right?

So when is THAT gonna’ happen?

Light at the End of the TunnelLook back over the past four years–you’ll find some report, chart or statistic that let someone call a bottom… every single week.  Every government intervention, every positive report, every hint of slightly good news…. Every. Single. Time.

So eventually, it will actually be true.  But when?

We still have lots of foreclosures to flush through the system.  We can’t honestly call a bottom in the housing market until the dreaded Shadow Inventory pig moves through the python.

We also need jobs.  There is no way the housing market will see a sustained recovery until jobs come back.

Here’s the basic logic.

Deferred Households

  • America has added 3 Million people per year to the population for the past 4 years.
  • America should add another 30 Million people over the next 10 years.
  • America would normally have added 1.2 Million homes for each of the past 4 years.
  • Instead, Americans only formed about 850,000 new households per year.
  • If the jobs market returns to normal… household formation will return to normal.

Housing Inventory

  • Nationwide, housing inventory is at 2.5 Million homes
  • Four years ago, at the peak, housing inventory was 4.4 Million.
  • Just a year ago, at the existing sales rate, we had a 12 month supply of homes.
  • Currently, at the existing sales rate, we have a 6 month supply of homes.

Shadow Inventory of distressed homes

  • Shadow inventory is 45% lower than at the peak in 2009 and dropping.
  • Distressed sales are still 25% of the market nationwide but dropping.
  • Distressed sales are typically 30% lower priced but rising.

Affordability of homes

  • For the first time in 15 years, it is cheaper to buy than rent in over half of the country.
  • Average household debt service ratio is at lowest level since 1994.
  • Interest rates on mortgage loans are at an all time high LOW (thanks Sam!)
  • Construction of new homes has been on hold for 4 years.

The other real question is what do you mean by bottom?  The bottom of dropping prices?  The bottom of new housing starts?  Existing home sales?  Price is the one everybody cares about, but until new homes are being built, we won’t be able to expect a full recovery.

My opinion?

Housing prices follow jobs.

IF More jobs
THEN more households
THEN more houses sold
THEN prices rise

But with anemic job numbers and no change in sight, I wouldn’t want to call a bottom in housing prices.

So what is an investor to do?

Well, the good news is that those of us flipping foreclosures don’t give a crap.

If you buy right, fix it quick, and sell it right away… what do you care if prices are moving up or down?

The secret is to move faster than the market.  Only flipping lets you do that.

Once the bottom hits, and real recovery takes hold, other investment strategies make sense.  But until then, flipping is the safest category of investment.  Because market movement can’t catch you.

So how do you buy, fix and flip quick?  Ah….. that’s the secret, huh?