As Baron Rothschild once observed, “The time to buy is when there is blood in the streets”. To say there is blood in the streets may be a bit of an exaggeration in describing today’s housing market, but the recent release of the Case-Shiller Home Price Index report that nationwide home prices have hit a new low is Bad News for Sellers but is Great News for Buyers.
Of the 20 major metropolitan areas included in the index, only Washington, D.C. and Seattle avoided the downward trend. And while there is price appreciation being experienced in Alaska, North Dakota and several other markets, not included in the index, the overall news for home prices is poor, with the national index now being down to it’s 2002 level.
The reduction in home prices when combined with the current low interest rates now makes home affordability near its all time high according to the Home Affordability Index published by the National Association of Realtors. This is truly outstanding good news for potential homebuyers!
With such good news for potential homebuyers, why aren’t home sales setting new records? If any other product were on sale with such great prices and terms, stores would not be able to keep their shelves stocked! Unfortunately, potential homebuyers may be missing the opportunity of a lifetime for three reasons:
- The belief that buying opportunities may get better—which is a huge mistake because no one can accurately predict the bottom of the market. And as I point out in my Price/Interest Dilemma, a small increase in interest rates can add substantially more to the cost of ownership than a decrease in prices.
- The emotional reaction to want to “follow the crowd” which is almost always the wrong thing to do and was the reason for Baron Rothschild’s wise observation. I guess it’s the human desire to want to belong that influences people to follow the crowd even when the the crowd is doing the wrong thing. When home prices were growing at a clearly unsustainable pace, buyers willingly kept bidding up prices, but now that prices are down from 30% to 50% they don’t even want to make offers. I ask, “Just how likely is it the prices and interest rates will continue to fall?”
- The failure of real estate professionals to spread the good news that “Now is a Great Time to Buy a Home!” I think this is due to too many real estate professionals “following the crowd” and not explaining the facts.