Is Housing Going to Get Better in the Near Future?

Late Mortgage Payments up in 3Q

I don't think so. I just don't see how housing prices are, in many areas, considered affordable compared to incomes. During the housing and economic upswing that lead up to the crash (in a larger level, up from ~1990 with some blips down), all of the metrics for home ownership changed.

In the past, 20% down on a 15 or 30 year conventional, fixed-rate mortgage with an interest rate of 6-9% was what got you set up with a house. During the boom, little to nothing down, a 5/1 ARM, and interest in the sub 5% range became the norm. This drove up prices as people who, normally, could not afford to buy (through higher downpayment requirements or higher interest rates) were able to bid away.

But, as we all have seen, that created a huge bubble and disastrous collapse in housing. However, even with the (in some areas) large declines, housing does not seem to be "reasonable" to me, yet.

We are caught in a corner that makes real estate very undesirable, in my opinion. Prices are still declining, overall. If they are increasing, it is usually by moderate amounts. So, it is dangerous to buy now, because the value could continue to decline if the economy stays stagnant.

On the flip side, interest rates are at half-century record lows, as well. What happens when these rates stop going lower and start increasing? The affordability of a house due to higher interest payments goes out the window. On a $200,000 loan, the increase of 1% point from 4.5% to 5.5% is a difference of about $120/month. That doesn't seem like much, but that's also only 1% point of change and still below normal. If you tack another point on to 6.5%, it brings the payment difference up to roughly $250/month. This drives affordability down even more and could do much more damage to the price of homes.

It's almost a lose/lose situation. If you buy now, you'll have a low interest rate locked in, but you'll open yourself to losses if the market continues down and/or if interest rates begin to climb.

What's going on in your area? Are housing prices declining? Are people looking at homes? Are they under water in theirs and unable to move?