Are You Ready to Buy Real Estate Now?

I am bullish about the real estate market, but I want to hear what you think

By Marc Roth

It's been eight months since I began providing readers with data and my thoughts about residential real estate. Based on the majority of your comments, we are in agreement that while our country is obviously in the midst of volatile economic change, this turmoil has also spurred tremendous and unprecedented opportunities.

The obvious question is, where do we go from here? With spring, the official kick-off to the residential real estate buying season, just around the corner, I thought it would be a good idea to look at some of the key drivers that determine real estate prices and see what the numbers are telling us. I'll tip my hand up front. My conclusion, based on everything we are going to discuss, is that that we are—or soon will be—heading into a period when homes are going to be more expensive for two reasons: First, the price of the homes themselves will be going up, and second, mortgages rates will as well.

But I really want to hear what you think, based on your own experiences—and your interpretation of the data.

I think these seven have the biggest impact on home prices.

As you can see from the first row, housing prices have bounced off their lows. I realize there are still several regions—such as certain parts of California, Nevada, Arizona, and Florida—that are still feeling the pain. Clearly those areas had the biggest runup and so it is not surprising they have been the hardest-hit.

Existing home sales volume—line two—has also flattened and even rebounded a bit, which naturally brings us to line three, which shows that market inventory is coming down. So, with inventories shrinking and prices holding, what I see happening is the beginning of the supply and demand shift.

Diving Deeper

As you can see, the home affordability index is currently at extremely favorable levels. As I wrote about in my previous article "Housing Affordability Made Simple," this index combines pricing, income, and interest rates to evaluate how affordable housing is at any point in time relative to history. The higher the number, the more affordable it is to buy a house.

The recently reported average of 164 shows home prices are still at attractive levels but the number is falling, meaning the expectation is that it's soon going to cost you more to buy a house.

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