But first, kudos to new poster lolatengo for pointing out that the sales/new listings ratio was incorrectly stated in the last update. The sales/new list in the second week dropped from 38% to 34%. This is actually highly unusual, since sales/new listings generally starts off low and increases throughout the month (since the beginning of the month brings a flood of relists). Have we ever had a decrease from the first to second week of a month?
Back to market bottoms. After almost buying a house a few weeks back (had an accepted offer), we've changed our minds and decided to move and rent a house for another year or so. This is for several reasons:
- The houses in our price range still weren't quite what we would want to live in for the long term (15+ years).
- Hard to swallow dropping half a million on a place and still needing to spend tens of thousands on repairs with the associated disruption/stress.
- Market is increasingly weak, so the chances of it being advantageous to wait are high. According to Roger's rent vs buy calculator, if it stays flat, we break approximately even and can afford a better place in a year. If it declines we save whatever the decline was.
Of course one thing to consider is how long the correction will last. A common argument is that timing the market is impossible, and if you wait too long you'll miss the chance and have to buy when the market is recovering and competition is fierce.
So what about past corrections?
- 90s - 5.5 years from peak to trough, during which time conditions were favourable for buyers with lots of selection. It took 7.5 years for nominal prices to regain their previous peak.
- 80s - The decline was cliff-like and lasted 4 years. Again it took 7 years for nominal prices to regain their peak (11 until real prices caught up!).
- 70s - 4 year peak to trough until the bubble of the 80s started.
Our peak was in early 2010, so I think we can safely assume that our correction has at least 2 more years, and likely more after that. I'm not worried about missing the boat anytime soon. (By the way, for those who like to look at prices as flat since mid 2007, and thus would define our correction as already 5 years old, by that measure the 90s correction was over 8 years long).
As for timing the exact bottom, it certainly doesn't seem like there the MOI will give us any sort of predictable head's up. When the market decides to recover, MOI falls off a cliff and prices start rising.
|Victoria MOI and SFH Median for 90s market bottom (click to enlarge)|
|King County (Seattle) MOI and SFH Median for their market bottom|
It is likely much more useful to look at affordability measures to gauge approximately how much longer a correction will continue for.
Extra graph: Sales to new listings ratio from 1990 to 2012. Note that in the last 2 years we've seen the lowest sustained sales/new listings ratio in 20 years. Crazy extrapolation: More people than ever are listing but not able to sell. We're building up pent up selling demand.