Housing Bottom: Are We There Yet?


Millions of homeowners across the country are hanging on for dear life, making their monthly payments and hoping and praying that the value of their homes – once thought to be akin to a virtual retirement account – will rebound from historic lows.

How bad has it been? According to the S&P Case Shiller Home Price Indices, U.S. homes have lost roughly a third of their value from May 2006 to May 2009.

Things didn’t get better right after that. The real estate web site Zillow.com reports that sales of previously foreclosed homes accounted for 22% of all home sales in June, and that 29.2% of homes sold for less than the original purchase price over the same time period.

But August has been a bit kinder to U.S. homeowners. S&P Case Shiller posted its first positive quarterly index in three years earlier this month, suggesting that the housing market is back on track.

But how can we really be sure? Let’s look at a few key indicators that would, if they transpire, suggest that the U.S. housing market has finally hit bottom – thus triggering the popping of champagne corks from Catalina to Key West.

Momentum after the $8,000 new homeowner tax credit expires. This one may take until November to know for sure – that’s when the new homeowner tax credit goes away – but if the number of home buyers still remains strong, even without the government tax credit, the outlook should be a rosier one.

Home construction stocks inch up. Big companies in the home construction business, like Toll Brothers (Stock Quote: TOL) or even Home Depot (Stock Quote: HD) have been hit hard by the economic downturn. But watch them closely in the coming months. In particular, watch their profit margins – look for same-store figures – in equally hard-hit regions like California and Florida. If their balance sheets stabilize, and their stock prices shoot up, then chances are we’re actually out of the woods.

Look for inventory to drop. There are a millions of houses on the market right now, and many banks are holding back tens of thousands more in what real estate professionals have come to know as “shadow” properties. But the tide is beginning to turn, as housing inventory at the end of June, according to Keller Williams Research, fell 0.7% to 3.8 million, representing a considerably lower 9.4-month compared to a 9.8-month supply in May. If inventory continues to decline at those levels or better, go ahead and get that champagne out.

Of course, there are other key benchmarks to study. Unemployment (which is lagging right now), a reduction in rental properties, consumer sentiment, lending liquidity and average U.S. home prices should also be factored into the equation.

Altogether, these numbers will tell the tale. Hopefully, it’s a tale worth celebrating.

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