The False Housing Rebound



2006 was a shocker for many new homeowners. The market flattened out. In the last half of the year, it actually started to tank. Home values began to fall like a rock in some parts of the country. At long last, it looked like the famed real estate bubble had burst. The question, of course, became how long would the situation last? With receding home values and higher interest rates, the immediate future did not look particularly good.

As 2007 gets up and running, we now hear that real estate is on the rebound. Imagine that! After a mere six to eight months of down time, the real estate market is up and running again. Or is it?

Make no mistake, the number of home sales is picking up pace. Many gurus and pundits, however, are drawing the wrong conclusions from this fact. In their eyes, this means the good days are already here again. Not so quick, my friends.

While the number of sales in the housing market have picked up, the question is why? A closer look reveals a certain quirk that is actually not a positive sign. The number of sales are increasing because more homeowners are facing up to reality. Specifically, they are realizing the value of their home has dropped and are pricing it accordingly. While sales are picking up, home values continue to fall.

So, who really cares so long as sales are picking up? Well, homeowners should care. The values in a local real estate market are arguably set by the last couple of homes sold. In the current situation, those homes are being sold for less than they were a few months ago. While this makes the market more active, it does not increase home values in the area. Instead, it actually pushes them down a bit. In a best case scenario, it flattens them out at whatever the sales price is for the homes in question.

So, are we seeing a rebound in the housing market? Yes and no. We are seeing more sales, but with no positive change on the value of homes. In short, we have a false housing rebound.