Selling or Buying Your Home: What Are You Waiting For?

Unless you have a very long time horizon --- long as defined in “multiple years” --- holding off on your decision to sell or buy your home is unlikely to get you anywhere.  It is unlikely to realize any financial gain and will kick down the road the type of home and community you choose to live in. Two weeks ago I opined in this blog that if you intend to sell or buy your home, there has probably been no better time to do so than now.  Kelly Evans, writing in today’s Wall Street Journal  “The Housing Headache Felt All Over”,  says it straight up “Anyone playing down the importance of housing at this point in the business  cycle is missing the point: Housing is the business cycle”.  www.wsj.com. Referencing Edward Leamer, UCLA economist in a 2007 paper, the implications of high rising debt levels retards consumer spending and fosters a severe downturn in the housing market. The Commerce Department reported today that housing starts dropped 10.6 percent for April 2011. www.reuters.com/article/2011/05/17/us-housing-idUSTRE74G3GO20110517.  It is anticipated there will be less new home sales in 2011 than at any time since records were kept, starting in 1963.  Glaringly, there were 60% more new homes sold in 1963 than in 2010, notwithstanding that the population of the United States has increased by approximately two-thirds.  According to Mr. Leamer, the reason we remain stuck, and notwithstanding record low interest rates, is because when consumer household debt levels are excessively high, it takes many years for the housing market to correct itself. Compounding the problem is the risk of stagflation.  Ronald McKinnon, a senior fellow at the Stanford Institution for Economic Policy Research, also writing in today’s Wall Street Journal, www.wsj.com/article/SB10001424052702304066504576341211971664684.html?mod=WSJ_Opinion_LEADTop cites that the current supply of ordinary bank credit to consumers continues to fall from what it had been in 2008. For more than two years the Federal Reserve has kept short-term interest rates near zero. He queries, if the prevailing interbank lending rate is close to zero, why should zero interest rates cause a credit constraint amongst consumers?  Well, Mr. McKinnon proffers that large banks with surplus reserves, who lend to smaller banks which are the traditional big lenders to consumers and small to medium sized businesses, don’t like to part with their reserves for a paltry yield.  What this means is that stagflation is apt to take hold at the same time that inflation takes off. Finally, did you catch today’s story in the Herald Tribune, “Developer  Backs Off Promise”? www.heraldtribune.com/article/20110523/BREAKING/110529764/2107/BUSINESS? Benderson Development is hoping to cut 437 homes from University Town Center.  I can certainly appreciate and understand the issues that Benderson faces --- the economic landscape has changed dramatically from when the development was first proposed in 2007.  Further, its decision not to build 437 homes is keeping in line with the above cited Commerce Department report which indicates that an overhang of homes on the market discourages builders from taking on new projects, pointing to prolonged weakness in the housing sector. But, what I found particularly interesting is the quote from Sean Snaith, economist at the University of Central Florida.  Referring to the sharp drop in home prices over the past four years, Mr. Snaith termed affordable housing as “the housing formerly known as luxury housing”. Folks, it is my view that the takeaway is that housing is not going up any time soon.  I see it as a bottom dwelling crawl over the next many years --- we’ll see some sporadic up and down blips, but we are pretty much in a crawl-like cycle.  So, unless your time horizon to buy or sell is very long, i.e., as in multiple years, there is simply no reason to put off your home selling and buying decision.  Whereas, housing prices are likely to remain stagnant for an extended period of time, interest rates will rise.  As interest rates rise, the available pool of buyers will diminish --- that too will aid and abet in keeping home values from seeing any appreciable increase.  And, if home values will not see significant price appreciation over the ensuing years, there is no rational basis to wait for “the market” to bounce back, and keep your life on hold. We can only deal with conditions as they are and then make the most of them.  Looking out at the horizon over the next several years, there is probably no better time than today to buy or sell, unless, of course, you simply do not want to.