Are We at the Bottom Yet?

People ask me this all the time. And though I would love to answer with a resounding , "YES! Rejoice, the nightmare is over! Buy now because this is as low as it goes…" I can’t say it. Not yet.

The numbers tell all, though interpretation is the tricky part. While October’s results were encouraging with many blips of hope in several categories, November’s were less impressive. Some of this is seasonal, but I suspect we’re not totally done with our local downturn.

Yesterday’s sales meeting included an impromptu conversation on short sales and foreclosures. Even though they’re generally not common in this market, they seem to be cropping up more and more. From the $2 million top-of-the-line remodel in Lakeridge Shores to the little starter home in Double Diamond to the $1 million fixer estate in Washoe Valley, no one is immune to the possibility of falling behind on payments they can no longer afford.

If this market were just about housing prices accelerating out of control in the past couple of years, I might look at recent 25% corrections in Wingfield Springs and say, okay, that’s probably all there is. It’s been a year, prices have adjusted, we’re done.

But the wild card in this is all the crazy lending that went on these last three years. The voodoo, exotic, if-you-can-breath-you-can-borrow-$400,000 loans that seemed to be the norm these last 36 months. How many of these people who barely qualified for 100% financing can afford the huge reset payments that the coming months will bring?

And how many of these people who qualified had jobs that were somehow dependent on the health of housing and construction? The mortgage guy gets laid off and can’t make his mortgage payment, the house is now worth less than he paid, so he can’t even sell it without bringing $50K to the closing table, which leaves him pleading with the bank for a short sale. Then there’s the construction attorney who spent way too much money on his custom designer remodel, gets divorced, can’t sell the overpriced result, bills fewer hours due to all the stress and finds himself in foreclosure.

For the majority of you who have been in your homes for many years with lots of equity and a reasonable house payment, this, of course, does not apply. But for that percentage of the population who’ve moved in the last few years, taken out an exotic loan and at some point run into trouble and have to sell at a loss, this could be a problem.

How many of these folks are out there? Good question. How many are going to fall behind and be forced to put their homes on the market at rock bottom prices? Another good question. These folks are the minority, to be sure. But how many of them will be flushed out by current market conditions, forced to price their homes at new neighborhood lows? We’ll just have to wait and see.

So when will we know when we’ve hit bottom? The answer lies in decreasing inventory. When we get to a point where the buyers start nibbling away on excess inventory at a steady pace, inventory will decrease, absorption rates will tick upward, and prices will soon follow. We may wallow at the bottom for a winter, or maybe for another year. Only the numbers will tell.