A Market in Search of the Bottom:
When is it time to buy?

Ask anyone who owns real estate when they think the housing market will have reached the bottom, and each one interviewed will be sure to have formulated a thesis on the subject. The interviewed homeowners will then set forth their opinions based on evidence derived from a combination of what just happened to their neighbor's house, an article they read in the Post, Times or somewhere online last month, and their general feelings toward the state of the nation's politics.

Since sentiments tend to drive consumer behavior, these folks may not be too far off the mark. Only hindsight will tell.

The question of timing the market is a question I field at least every other day, so I thought it worthwhile to write an article on what I am seeing in the market on a daily basis and how I believe that signs of stabilization (not increases) in prices are coming about slowly but surely. But don't just take my word for it; I've also found some economists who agree with my sentiments, as well, as you'll see below.

Volume of transactions is up significantly for our team this year:

As of June of this year, the Patrick Kilner Real Estate had closed as many transactions as we did in all of last year and we are on pace for a record number of sales. Certainly, I would like to think that this is due entirely to our more effective marketing efforts. However, it is undeniable that the number of buyers have increased significantly from last year. This is due in small part to the government's incentives for first-time buyers, but due more so to the fact that prices have - in the eyes of many buyers - leveled off enough to jump into the neighborhood they have been eyeing.

Naturally, when demand increases, supply is consumed more quickly. Inventory becomes increasingly scarce; prices find a higher equilibrium than they did when demand seemed to be missing altogether.

Investors are jumping --slowly but surely-- back into the market:

Once investors begin to see that a market is flat enough to purchase a property without the risk of losing too much in further market decline before they renovate and re-sell the house, it is safe to say that the market is beginning to stabilize. This sort of investment, as well as investment for longer-term strategies, has been more prevalent this year. Investors are being forced to be more creative with their financing than before, because of the limited funding available through traditional banks, but those who have money to invest are looking back to real estate as a solid long-term investment. With rentals so strong these days, I foresee long-term investment as a staple of the stabilized housing market as they have been in similar periods historically.

These well known economists seem to agree with me (at least in their actions):

According to the Wall Street Journal and the Los Angeles Times, the following gentlemen purchased homes this year:
* Paul Krugman, the Princeton University economist and Nobel laureate, who bought a $1.7 million Manhattan apartment this month (original listing: $2.5 million), according to the Times.
* Dean Baker, co-director of the Center for Economic and Policy Research in Washington who began sounding the housing siren in 2002.
Interestingly, Mr. Baker bought recently, five years after he sold his Washington apartment and began renting. The Times writes that Mr. Baker wasn't trying to perfectly time the bottom of the market:
Baker said he's psychologically prepared for his house to fall 10% more in value.
That risk, he said, was offset a bit by the 4.25% mortgage rate he obtained and an $8,000 federal tax credit. He also emphasized that a house isn't just a financial instrument but something one might decide to spend money on for enjoyment.
"I really value having a porch, a yard, other things like that," he said, and he's willing to pay a price for them - just not any price.