Determining the Housing Bottom for Your Local Market

Determining the Housing Bottom for Your Local Market

by Charles Hugh Smith, contributing editor

Monday, January 23, 2012

Executive Summary

• Why we may need to revisit how we determine “fair market value”
• Local factors to consider
• The importance of sentiment, and how to use it to your advantage
• The emerging two-tier pricing structure for most markets
• Five tools that will enable you to estimate how near (or far off) prices in your local area are from a bottom

Part I: Searching for the Bottom in Home Prices

If you have not yet read Part I, available free to all readers, please click here to read it first.

Part II: Determining the Housing Bottom for Your Local Market

In Part I, we examined how the policies of the federal housing agencies and Federal Reserve have fundamentally socialized the US mortgage markets and are propping up housing sales and valuations via zero-interest rate policy (ZIRP), housing subsidies, and various loan guarantees.

Along with the structural factors outlined in my December series, Headwinds for Housing, this is the backdrop for our individual assessments of is this the bottom in my local real estate market?

Why This Time May Indeed Be Different

Before we look at some tools that will help us make that assessment, I want to stipulate that this overview is aimed at small-time investors, not institutional players, and that it may first strike experienced real estate investors as too basic. However, we must be alert to the possibility that this real estate market, so dependent on Central State intervention, ownership and policy, is qualitatively different from previous eras. And so the lessons of previous markets could be misleading, akin to “fighting the last war.” Thus we would be wise to start with the most basic tools as a foundation for further investigation.

I should also stipulate that I have been involved in the real estate market as a small-time investor for over thirty years, using only my own money to own and manage rental property, develop and build homes, and at times to build larger developments for others.