Now is a good time to buy a house
many real estate agents said it was time to buy as prices began to drop -- and continued to say it over the past several years as prices fell by an average of 33 percent in America's 20 largest cities.
Mr. Lereah would acknowledge that he had gotten it wrong. But from the perspective of many real estate agents, it is always a good time to buy.
"What they are really saying is that it is a good time to be involved in a transaction that generates a commission," says Barry Ritholtz, C.E.O. and director of equity research at FusionIQ, a quantitative research firm. He's also author of "The Big Picture," an irreverent blog on markets.
If agents are always motivated to make a deal, buyers are often asking an impossible question: "Will the price of this house go up?"
Although the National Association of Realtors said for many years that home prices historically don't fall, actually they do, and sometimes quite sharply. The housing market is complicated, and the future unknowable. Still, for clues to the overall direction of prices, Mr. Ritholtz advises buyers to look at three metrics: the ratio of median income to median home prices, which suggests whether people can afford a house; the cost of ownership versus renting; and the value of the national housing stock as a percentage of gross domestic product.
All those measures were aberrationally inflated during the housing bubble. And they still aren't back to historical norms. We can get back to the norm in either of two ways, Mr. Ritholtz says: home prices can either drop an additional 50 percent or go sideways for seven years or so, while G.D.P. and income presumably grow.
To complicate matters, even if home prices rise or fall nationally, they may not follow that pattern in Las Vegas or South Florida or Maine, to say nothing of the neighborhood where you want to buy.
There may be a better way, however, for potential buyers to approach the problem. "Predicting interest rates is a whole lot easier than predicting home prices," says Glenn Kelman, chief executive of Redfin, a multistate discount online real estate brokerage company based in Seattle. "Before you buy the house, you buy the money," he says.
It's a little like walking into a dealership to buy a car, and finding the saleswoman immediately jotting down what your monthly payments will be and starting the negotiations there. That's absolutely the wrong way to buy a car. But for a prospective homeowner, it's a good place to start the analysis to determine how much house you can buy.
Instead of betting on home prices, you make a bet on whether money will become cheaper or more expensive, allowing you to buy more or less house.