The Next Few Months

The next few months are going to be critical for the housing market. If things go anywhere near the vision of some optimists, we will begin to see a sustainable upturn in home prices. Here's why:
1) A significant majority of CEOs are bullish about hiring. When those who will not lay off anymore are added, the percentage of CEOs who will keep the same number of employees or hire more employees hits nearly 80%.
2) Interest rates are at their loweset in recent history! Given 30 year fixed rate mortgages can be found at 4.5% interest rates, a borrower with a moderate tax bracket of 25% total state and Federal will see an "effective interest rate" (after taxes) of 3.4%. Where else can you borrow up to $429,000 at those kinds of rates with a 30 year payoff period?
3) The upcoming mid-term elections will see candidates (and non-candidates) positioning themselves as pro- anything that will help the consumer. Things like additional help for the housing market if needed, slow rate hikes in interest rates, etc.
4) New home construction has dropped off a cliff as builders have mostly quit building "spec" homes. New home sales in May declined 32% from the rate in April, mostly fed by the expiration of the home buyers tax credit. Unless construction picks up, we could have a shortage of new homes by 2012 which will only fuel demand for existing homes.
5) Consumer confidence (and spending) continues to rise. While not always an accurate indicator of what will actually happen (more an indicator of what consumers wish would happen!), bullish consumers spend money and feel more confident about making major purchases.

Will all these factors actually drive home prices up in the coming months? Stay tuned as we look at the sales numbers for June, July and August. Normally the "last gasp" before the market takes a short recess for "back-to-school", the expiration of the tax credit should have pushed sales forward into April and previous. If sales continue at any reasonable pace, we could be seeing the beginning of a sustained rally in home prices.