The Long and Short of the Market

Posted by Phil Boren on Tuesday, March 17th, 2009 at 4:12pm.

It's easy to think of (and hear) lots of bad news these days, no matter what market you look at. Certainly if you look at the real estate market on a daily basis - there's plenty of information that might make you want to run and hide. But real estate is not a day-trader's market and we should resist the urge to take this kind of short-term view. People who buy in this market and have a longer-term outlook will be rewarded, and statistics indicate that there is a tremendous opportunity to buy in today's market. That's really the Long and Short of it! Let's look at some current data from the National Association of Realtors®, Economy.com, and John Burns Real Estate Consulting:

homepricetoincomechart_410 The housing "crisis" has resulted in some pretty encouraging numbers for today's buyers. The chart to the left shows that after the peak in June of 2005 at 5.0, the current National Home Price to Income ratio of 3.3 has come down to nearly historic lows!

Yes, these are National statistics and real estate markets are intensely local, but this data is encouraging for the long-term buyers. We have a saying that ". . .you can't sell high if you don't buy low." Pretty basic investing criteria, but the macro-market trends are critically important in making a decision to invest in real estate. Couple this with the Obama Administration's 2009 Housing Stimulus Bill that provides up to an $8,000 tax credit for qualified purchases up to December 1, 2009 and current mortgage interest rates, and it's even easier to see why we believe you should consider buying a home now. Please click here for a summary of the 2008 vs. 2009 versions of the tax incentives available to first-time buyers.

housingcosttoincomechart_410 Here are some additional stats that are just as encouraging: The National Housing Cost to Income ratio, through January 2009, has fallen to a level that many people have never seen in their lifetimes. From the peak in September of 1981 at 63% to today's level of 27% is a massive change that should be encouraging lots of people to buy!

In essence, buyers today can enjoy the combination of higher income (as compared to 1981), lower interest rates, and the recent decline in housing prices to realize the American dream of home ownership. Again, couple all these factors with the tax credit available to first-time buyers, and the picture becomes even clearer: If you're considering buying a home, now might be a great time to do it. Yes, loans may be harder to get these days, but qualified buyers have a great opportunity here.

How is the Denver-area market faring? Denver is actually doing better than many other markets, with a current Housing Cost to Income ratio of 20% as compared to its historical average of 33%! Tied for 5th place out of the top 20 markets in the country, Denver's ratios are even better than Austin, Texas', which has a current ratio of 25% and a historical average of 35%. Austin is often talked about as being one of the country's better markets, but Denver is actually faring better than Austin! The top 20 markets have an average of 27% and a historical average of 35%, so we believe the Denver-area market is poised for future improvement.