In 2011, if spending and consumer confidence continues to increase, a recovery of the housing market should be on the horizon. It will be a slow process, but with a general move in the right direction for home ownership. This will ride on the coattails of the fact that our overall economy is beginning to settle into a more stable state.
Business spending will be the gauge of where the market is moving. Businesses must invest in the growth of their companies and, in turn, will quicken job gains and, thus, interest in home ownership. The highly inflated level of home prices has been shattered and market and interest rates are at their historical low points. These factors make home buying attractive. Consumer confidence only has to rise to the occasion. Another factor is that home prices are more in line with income. In the peak of 2006, when home prices were inflated, the average house cost 3.5 times an average income level. Now, that ratio is about 2.4 times income. The historical normal level was 2.5 times so now would be the a good time to purchase.
Inflation has not been an issue in the past few years, as the 2010 Consumer Price Index increased only 1.1% from 2009. It remains to be seen if inflation will return in 2011 or 2012. There are signs that prices could start heading upward, since the Federal Reserve anounced it would flood the economy with money by purchasing $600 billion worth of Treasurey bonds next year. Interest rates rise with inflation.
People in general, have learned hard lessons: spending within their means. This doesn't equate to the fact that owning a home is an unattainable goal. It just means that purchasing a home in a comfortable price range is a more realistic goal.
Aligning these factors, normal inflation, reasonable home prices and consumer confidence, the long awaited expectation for a more normal housing market can be expected.
Article Courtesy of vvargas @ Robert Defalco Realty
