Have We Finally Hit Bottom ?

After 5 years of plunging prices and spiraling foreclosures, maybe -- just maybe -- the bubble has stopped bursting. Home prices are beginning to rebound in many parts of the country, including Maine. We all know that real estate markets are cyclical, but trying to determine the bottom of the cycle (especially after our recent "Great Recession") is alot like waiting to buy stocks at their lowest price -- investors are often left in the lurch, because when the bottom is finally recognized, the elevator is already on its way up. Taking into account current figures for the numbers of listings, foreclosures, sales and prices, we believe the bottom here in Maine occured in late Fall - early Winter of 2012. Remarkably, even though prices are back to their 1988 levels, interest rates seem to be holding at historic lows -- giving some real substance to the old real estate adage that "NOW is always the best time to buy" -- but we believe the elevators for both prices and interest rates are headed up soon. Historic Low Rates... Interest rates for a 30 fixed loan are currently around 3.5%, near the lowest ever recorded in the 40 year history of the Federal Reserve. To give you an idea what this means, at the start of the 1970's they averaged around 7% ($100,000 loan = $665 per month). During the 1990's rates averaged around 9% ($100,000 loan = $805 per month). Today at 3.5%, a $100,000 loan = $450 per month. Elevator Going Up... The chart above estimates the market value of median-priced homes over a 40-year period. The red line represents real house prices, adjusted for inflation. The blue line represent nominal house prices. As you can see, median prices were around $150,000 in the 1970's, hit a high of $300,000 in 2006, and are now around $188,000. The red and blue lines turns upward at the end of 2012 and is expected to continue this trend...