GETTING CLOSER!

Why We Need the Housing Market to Hit Bottom

Written by: Brian O'Connell 11/11/11 - 12:01 PM EST

NEW YORK (MainStreet) -- With home values in decline, down about 29% since 2006 according to Zillow.com, you might think that affordability alone would make the housing market a good bet. But it isn't. And that is weird.

When the price of most commodities goes down, such as gasoline or oranges, the tendency is that consumers buy up more of those commodities. But that hasn't happened in the U.S. housing sector.

A bottom in the housing market has been a long time coming, and new numbers may make the picture clearer.

Even though housing prices, on average, have fallen almost by one-third in the past five years, housing purchases just haven't budged.

Pending home sales were down by 4.6% in September, according to Realtor.org, while existing homes sales fell by 3% (although sales for the year in both categories are up moderately). That's been the case for most years during the Great Recession, as sellers outnumber buyers.

But as any homebuyer could tell you, it's not easy getting credit for a $500,000 home -- or even a $300,000 home. In addition, high unemployment has made buyers nervous. Few consumers want to take on a massive source of debt when they're uncertain about their job prospects. In addition, consumers don't want to buy a home that may not appreciate in value all that much during the next 10 years.

But affordability may finally help get some homes off the market, albeit at a slower pace than homeowners and real estate professionals might like. Numbers from Fiserv Case-Shiller show that lower home prices may finally be triggering "price stability" in the U.S. housing market.

The Fiserv home price insights index shows three fairly major developments in the housing sector, one for the long haul and two happening right now:

Home prices in the U.S. are expected to decline 3.6% into mid-2012, and then rebound 2.4% in the second half of 2012 through the first half of 2013.

Price declines and low mortgage rates have resulted in dramatic improvements in housing affordability.

Fiserv estimates that the ratio between mortgage payments and housing income has fallen 40% from its peak in 2006.

"Housing affordability has improved dramatically because of declines in both prices and mortgage interest rates," explained David Stiff, chief economist at Fiserv, in a statement. "The monthly mortgage payment for a median-priced single-family home is now $700, compared to $1,140 in 2006 -- a decline of nearly 40%. Nationally, purchase mortgage payments now account for only 13% of monthly median family income, the lowest percentage on record (since 1971), and compared to 23% in the first quarter of 2006."

Both pricing declines and low mortgage rates may finally be gelling enough to where people should start to feel more comfortable buying a home, although the data show that lower-priced homes are more attractive than median-priced ones these days.

Of course, any pickup in "affordable" home purchases depends on the health of the U.S. economy -- an uncertain proposition as the U.S. and global economies struggle to emerge from recession. Stiff, for one, thinks the odds of that happening are pretty good.

"If economic growth picks up in the second half of 2011, then home prices should stabilize early next year," he says. "New housing construction is at an all-time low and inventories of foreclosed properties are starting to shrink. Lower levels of housing supply and more steady demand next year will reduce downward pressure on prices. As homebuyers become more confident, many who are sitting on the sidelines will begin to enter the market and prices will start to increase."

That would be a welcome prospect indeed for homeowners, and for buyers itching to get into a home of their own. We'll know a lot more by next spring, but for now, the outlook for housing is as good as it's been in a long while.