When will the housing market recover?

One of the hottest conversation topics in this declining real estate market is when will it recover. This is important because the No. 1 maxim in real estate investment is you make money when you buy. Or as Donald Trump has said: There’s more money to be made in a down market than a rising one. And Trump said this past week on CNBC that he sees enough value that he’s in a buying mood – in California, no less.

Virtually no one is predicting that 2008 will be the year the market recovers. It’s almost a mathematical certainty. There’s too many Adjustable Rate Mortgages out there still to reset, too many REO properties on the market or soon to be, and we still haven’t solved our country’s lending crisis.

But there’s no shortage of predictions or ways to come up with a prediction.

One analysis I’ve recently seen looked at historical down cycles in California. The longest down cycles lasted no longer than five years. This analysis points to a construction downturn that began in 2005, suggesting that the overall market demand should recover during the 2009 - 2010 time period.

Anyone working every day in the local real estate market will tell you that the market definitely started to change in late 2005. However, the median home price in Los Angeles didn’t start to dip until 2007.

In September 2007, the reputable UCLA Anderson Forecast repot predicted a 2009 recovery for the California real estate market envisioning: “A pickup in building permits and a moderation in mortgage problems in late 2008 early 2009.” Personally, I think that’s a bit optimistic and perhaps didn’t account for the fact that turmoil in the financial markets has lasted longer than most would have expected.

Finally, a national analysis issued just this month from Moody’s titled “Aftershock: Housing in the Wake of the Mortgage Meltdown,” predicts the beginning of a housing market recovery in 2009.

Personally, I think that 2009 will see a slow beginning of a recovery. But I think financial problems have lingered longer than expected. They are now beginning to be addressed by the government and private sector. However, Los Angeles also was a bit behind the rest of the country in seeing prices and activity fall. Therefore, I don’t see a significant recovery until 2010. Let’s talk again in two years and see if I’m right.