Bottom of the Market ?

What will the fabled "bottom of the market" look like? Here are several indicators likely to precede an increase in housing prices and activity.

New home sales rise

 

New homes began experiencing a price correction several months before existing homes. Logically, onewould also expect new home sales to start rebounding ahead of existing home sales. To provide a decent, albeit unscientific, gauge of the market, find a few new home developments and monitor the prices in these neighborhoods. Project that action forward 6-12 months, and you should have a fairly good view of the future of existing home sales.

Alt-A borrowers continue to make payments

We all know the devastating effect that subprime mortgages had on residential home sales. Most analysts believe that the subprime foreclosures are coming to an end. However, Alt-A mortgages could provide a new wave of foreclosures. Alt-A mortgages are made to borrowers with high credit scores, who refuse to provide documentation of their income. Some analysts believe many of these borrowers exaggerated their incomes by up to 50%. Many of these mortgages (about 1/3) were signed in 2006, with low teaser rates that reset in 3-5 years (beginning next year). This could provide a massive wave of new foreclosures,driving prices down further, or it could be much ado about nothing. Only time will tell.

 Positive economic news

Many analysts believe that the housing market is ready to rebound, but it is being suppressed by a torrent of negative financial news throughout the US economy--namely recent headlines suggesting unemployment and inflation are on the rise. When these factors begin to turn around, housing prices should follow.