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U.S. Housing: Now Is the Time to Buy

Back at the height of the housing boom, around 2006, it would have been impossible to convince housing insiders  that the market was headed for a five-plus year downturn.  But here, we are, with home prices at 2002 levels across the nation and at 1990s levels in some of the hardest-hit areas.  Despite all the chaos, however, there are a growing number of indicators that the tine to but is upon us.

For one, mortgage rates are still very near historic low levels, making homes more affordable than in recent years.  According to a study by Moody's Analytics, the ratio of home prices to income is nearly 21 percent below the average ration between 1995 and 2010, and 12.5 percent below the average from 1989 to 2004.  The massive oversupply of homes on the market, meanwhile, has created a definite buyer's market.

Housing analysts insist that these favorable conditions for buyers may not last long.  Moody's estimates that the supply of distressed homes on the market will begin to fall by 2013 at the latest, and prices will start climbing back up when that happens.  And with homebuilding coming virtually to a halt, the supply won't likely get much worse than it is now.  Additionally, several demographic indicators such as household formation, or the number of new households each year, are on the rise, meaning that the pace at which the supply dissipates is likely to rise.

Admittedly, the short-term outlook for the housing market isn't exactly promising.  The job market continues to grow at too weak a pace to make a dent in the unemployment rate, foreclosure sales are accounting for an increasing percentage of supply, and economists expect prices to continue to decline through the end of the year.  But, in the long-term, homeownership still presents substantial benefits.  Homeowners are still allowed to deduct mortgage interest from their taxable income, which is a very nice perk for higher income Americans.  And given the increase in demand for rental properties, the cost of buying is often close to that of renting, so for the same price many Americans can begin building equity rather than just paying the rent.