Has the Housing Market Hit Bottom?

As one would expect, the question, "Has the housing market hit bottom?", comes up quite often these days. And, I might add, for good reason since ongoing declining housing prices have created extremely difficult circumstances for countless thousands of homeowners across the United States.

In fact, the declining housing prices have created desperate and stressful situations for families losing their homes to foreclosure, battling a short sale process, experiencing the ill-effects of damaged credit, potentially having to file for bankruptcy, or a myriad of other traumatic financial circumstances people are having to endure. Yes, hardworking and responsible people got caught up in the banks' scheme to cash in on massive mortgage and housing profits.

Of course, this is a loaded question since housing prices are truly local. In fact, the question of whether or not the housing market has hit bottom depends upon your specific neighborhood, the condition of your home, the segment of housing prices that you're dealing with, and countless other variables.

Keeping in mind that my crystal ball is broken, I will speak in very general terms regarding future housing prices and the questions: "Has the housing market hit bottom?" and "When will the housing market bottom in my neighborhood?".

In some of the more overbought real estate markets (Florida, Nevada, California, Michigan, Idaho, etc.), driven in large part by real estate speculation, I believe we still have a ways to go especially in the higher end segment of these real estate markets. Since there's not a lot of available credit and backup cash reserves, many of the lower dollar homes in these markets have already been lost and foreclosed upon while the wealthier individuals have had an opportunity to throw good money after bad in their attempt to hang onto their homes.

Regardless, as long as there continues to be a surplus in housing inventory, housing prices will continue to see downward pressure.

On a brighter note, we've already spent a number of years slowly working through some of this excess housing inventory. Even though there's hundreds of thousands of homes still to be foreclosed upon, there are hundreds of thousands of homes that have already met their fate. The consumer has already started working through the painful process of de-leveraging and working hard towards putting the pieces back together. It's a slow process, but it's been in motion for some time now.

On another bright note, housing starts continue to be at record lows. Yes, this is good news! Here's why. Even though record low housing starts are bad news for construction jobs in the immediate sense, it also means that additional housing inventory is not being introduced into these already depressed housing markets! The quicker we can move the existing housing inventory, the quicker the supply and demand will come back into balance and builders / developers will begin building again.

Many housing experts are signaling a broad U.S. housing market recovery to begin towards the latter half of 2011 and pushing into 2012. Of course, gas prices, a rising mortgage interest rate environment, inflation, and a host of other variables could slow down the housing recovery (or speed it up as well if the economic headwinds are favorable).

As you can see from the February 2011 S&P Case Shiller Home Price Index chart included below (Case Shiller Home Price Index chart of the 10-City Composite and 20-City Composite), housing prices have drastically declined, recovered a bit during the federal housing tax credit stimulus period, and have started declining again. Yes, some housing markets are double dipping. In fact, many housing markets are seeing housing prices reverting back to 1999 - 2002 levels.

Needless to say, there's not much comfort in these declining housing price numbers outside of the benefit that many housing markets have now returned to pre-housing bubble levels. The frothy appreciation gains have been given back and housing affordability levels, at today's low mortgage rate environment, are becoming more attractive for first time homebuyers and investors.

Truthfully, everyone is impacted when housing prices crash as they've done in this most recent housing cycle. Whether you've lost your job, have seen your retirement safety net slashed, or simply lost your borrowing power, consumer confidence has been severely damaged and the ripple effect continues to spread throughout the country like a bad plague.

We no longer build things in this country in mass job producing quantities outside of building homes! And, no developer wants to build homes until they feel like the housing market has hit bottom and housing prices appear poised for future appreciation gains.

When we're not building homes, contractors aren't hiring, less Realtors are working, less title companies are processing real estate transactions, construction supply stores are selling less material, local restaurants and convenience stores lose the lunchtime foot traffic ... you get the point. Declining housing prices have an unbelievably negative impact on most people and, unfortunately, the widespread economic damage is impossible to contain.

Unfortunately, the housing market cycles, hence our housing market trying to find a bottom. Fortunately, the housing market cycles, as this downturn will pass and better days are ahead. Hopefully, we will benefit from some of the painful housing lessons learned. Unfortunately, if history is any indication (which it is), we will be bound and determined to do it all over again!