Whether or not you’re a subprime borrower, prime borrower, or own your home outright, there’s a good chance you’re wondering about its value. Some people have been facing a steady decline in home value. If their mortgage is now equal to the home’s current value, or it has become too expensive (the mortgage rate adjusted upward), they may have no other option than to hand the keys to the bank. But even if you have plenty of home equity and/or income cushion, you may have that foreboding feeling that a large part of your wealth – home equity — is being impacted by declining values.
And then there’s the real estate investor. This person has been leaning in from the sidelines calculating when to pounce once his assessment of the economics is perceived to be in his favor. But how does he, or anyone else, know when the bottom’s been reached? If lucky or smart enough to perceive the bottom, is there enough time to pull the investment trigger before bounce has occurred, assuming that it’s not a dead cat bounce.
Robert Campbell, publisher of the Campbell Real Estate Timing Letter, thinks that he’s got five predicative indicators that can accurately tell when prices are ready to rebound, and here they are:
Existing Home Sales. What is needed here is a moving average from month to month which takes seasonality into effect.
Building Home Permits. Local home builders know their market and respond accordingly.
Mortgage Defaults. Defaults often lead to foreclosures, and if the number of foreclosure filings is rising, prices are usually going to decline.
Foreclosure Sales. This is how many foreclosures have actually occurred, which is the number of filings less the number of owners that have pulled out of default status by getting current on their debt service.
Mortgage Rates. Campbell says that this isn’t as much as a predictor as an accelerator because normally rising rates slow down the housing market, whereas falling rates propels it.
For more information, check out Lew Sichelman’s San Francisco Chronicle article. And remember that all real estate is local, so these indicators must be relative to the area of interest.
Oh, one more thing particularly tuned to real estate investors – few are smart enough to call the bottom, so rather than be paralyzed on the sidelined looking for it, find the deal that can carry itself. If rents can pay the mortgage and other expenses, and you expect to be able to keep it leased, then you’ll be fine even if, in retrospect, you paid a bit more than you could have if that foresight, now seen in hindsight, was 20/20.