17 May 2008 - With the nation's real estate slowdown heading into its third year, many are starting to wonder when the market will see a turnaround. Will it be another year or perhaps two? According to one expert, the market is already headed up.

An editorial in the Wall Street Journal dated May 6 says, "It is very likely that April 2008 will mark the bottom of the U.S. housing market."

But the editorial's author, hedge fund manager Cyril Moulle-Berteaux, is careful to caution that a bottom does not mean an immediate return to the boom days and heady price increases of 2005. A bottom simply means that the trend is not getting worse, he says.
Moulle-Berteaux says affordability, the same factor which led to the bust, will take us out of the housing decline.

He explains that for an average home during the 1990s and early 2000s, it took 19 percent of average monthly income to service a conforming mortgage and 29 percent for first-time buyers. But by 2005 and 2006, mortgage costs were taking 25 percent of monthly income and 37 percent for first-time buyers - figures that ultimately proved unaffordable.

However, with the combination of falling home prices, lower interest rates and rising incomes, Moulle-Berteaux says homes are now on average back to being as affordable as they had been, taking 19 percent of monthly income and 31 percent for first-time buyers.

"Numerous households that had been priced out of the market can now afford to get in," he says.

In addition to the newfound affordability, another good sign he points out is that we're seeing the inventory of unsold homes decline in absolute terms and peak in months-of-supply terms. He expects housing supply should drop even faster by the end of the year, which will, in turn, slow home-price declines and buoy up the market and the economy as a whole.

Other analysts also say inventories may begin to shrink and sales may start picking up.
Michael Larson, a real estate analyst with Weiss Research, told CNN Money that "Inventories in some cities may be topping out" because there are fewer new homes being built and builders and banks have been aggressive in selling off foreclosures and previously built homes.

Another expert, Lawrence Yun, chief economist of the National Association of Realtors, expects to see improvement in home sales in the second half of the year.

"As anticipated, we continue to look for a soft first half of the year, for both housing and the economy, before notable improvements in the second half. Some time is needed for FHA and new conforming jumbo loans to become widely available," he said.

The most recent forecast from the National Association of Realtors projects that existing-home sales will increase from an annual pace of 4.95 million in the first quarter to 5.82 million in the fourth quarter. For all of 2008, existing-home sales are likely to total 5.39 million and then rise 6.1 percent to 5.72 million next year.

Observations from real estate professionals across the country back up the predictions.

A nationwide survey from REAL Trends reports that 60 percent of real estate brokers and owners said they strongly or somewhat agree that their market was showing signs of improvement at the end of April. Some commented that they've seen increased interest at open houses and showings as buyers look for lower prices and seller concessions.

Although locally we have not faced the severe housing problems that have plagued much of the country, it is nonetheless refreshing to hear of an upward trend for the nation's housing and ultimately the economy as a whole.