Investment Thoughts: Timing the Housing Purchase

The current situation appears to be that prices in about half of the residential housing markets in the U.S. are still rising or flat, and that prices are falling in the other half. It is not presently clear to me which will become the dominant motif in coming months. I suspect the numbers will be negative rather than positive -- that the many homeowners who must roll over adjustable-rate mortgages in coming months will find it more difficult to do so, now that credit conditions have tightened in the wake of the collapse of the subprime mortgage market. Projections I am reading today are telling me that housing is generally expected to continue into negative territory into 2008, or possibly 2009. I would expect the latter, given that there is (if I recall correctly) a nine-month overhang of unsold houses on a national basis, as distinct from the more customary five or six. Absent a roaring bull market, which nobody is forecasting right now, it will take a while to work off that excess inventory. If you are looking to buy in a housing market that has experienced a downturn, I imagine a good time to buy will be when sellers are in a panicked state -- that is, slightly before the market reaches a solid, flat bottom. By the time things level out, the most desperate sellers may be gone, and you may be dealing with people who are not as desperate to sell. But since it is hard to see too far into the future, it may seem too risky to buy at that point, given the possibility that housing will stay down for a long time.