Home Sales Fall to Five Year Low – When Will it End?

by Justin Weinger on August 15, 2007

As a recent home buyer, it pains me to no end to write the article. At the same time, it pains me ever more to hear people say, “don’t worry, the home prices will bounce back soon,” when speaking about the currently woeful housing market.

I hate to be the bearer of bad news, but it’s just not going to happen any time soon. And by any time soon, I’m talking about the next three years.

While I’m sure plenty of you are going to shoot down what I’m about to say as an “apples and oranges” argument, I’d at least like you to hear me out first.

I liken this housing bubble to the most recent boom and bust we experienced in the stock market (specifically tech stocks) back in the early 2000s. I just see too many parallels between the two, which, unfortunately, makes me believe that we still have a ways to go before we see home prices stabilize.

The main reason why I see parallels between the two bubbles is because neither bubble was built on solid fundamentals. Investors jumped in not because they knew what they were doing or what they were buying into, rather because they were looking to make a quick buck in a market that made everything seem like it was sure to go up.

Because of these speculators’/investors’ actions, prices in both bubbles were artificially inflated and drive up to absurd and, most importantly, unsustainable levels. There’s no way that prices could ever remain that high, whether it was due to the fact that there wasn’t anything there to substantiate the high prices (i.e. no revenue), salaries weren’t keeping up, or banks were giving out money that people couldn’t afford to repay.

Anyway, I think it’s fairly obvious the the housing market is in the middle of its downturn. According to a recent press release by the National Associate of Realtors, home sales were down in 41 states and, for the most part, prices have yet to stabilize across the country. Not exactly great news.

In order to finish the parallel, I think housing prices will follow much the same path as many of the tech boom leaders: obviously, at some point the slide will end, prices will stabilize, but will then take years (possibly decades) to return to their peak values.

I’m sure you’re now screaming at your monitor that a piece of paper (a stock) is completely different from a house. You’re right it is. For those of us who bought our house as a long-term investment, and so that we could have a place to live and raise a family, none of this will really matter (assuming you can afford your payments).

However, the fact that both bubbles were fueled by uninformed speculative investors trying to make a quick buck is completely undeniable, and that’s really the point that I’m trying to make. These are the people that are responsible for the last two boom/bust investment cycles in our country and it’s unfortunate that many millions of “little guys” got caught in the wake.

I certainly hope that I’m wrong, but I really don’t think I am.

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