When will the market come back?

I get the above question on a daily basis, mainly from sellers or would-be sellers. To answer that question, I like the advice that was on the Jack's Winning Words blog today.

“The only thing we know about the future is that it will be different.” (Peter Drucker)

Isn't that the truth. A few weeks back we were getting advice that we might not even reach the bottom of this market until 2009. Today a report in one of my real estate news feeds held out hope that the end of this market is near, much sooner than had been expected. Parts of that report appear below.

One of the country's most prestigious groups of market forecasters, the National Association of Business Economists, says housing and consumer credit conditions will stabilize and begin improving as the year moves on. Equally important, said Ellen Hughes-Cromwick, chief economist at Ford Motor and president of the association: The entire U.S. economy will "slowly return to health" this year.

The housing market offered some immediate hints of that recovery with new home starts up by 8.2 percent last month and building permits up by 5 percent. Even in hard-hit southern California, home sales in April were up 22 percent compared to March, according to DataQuick Information Systems.

The mortgage sector continued to cooperate: Rates fell again for the third straight week. Thirty year fixed rate conventional mortgages averaged 5.8 percent, down from 5.8 percent the week before, according to the Mortgage Bankers Association of America. Fifteen year rates also dropped, averaging 5.5 percent.

That sounds great. I certainly hope that the Michigan market is included in this good news. We've suffered longer than most and seen deeper cuts that all but a few markets.

Why the continuing decline in rates? One reason is that inflation is not a major worry for capital markets investors at the moment -- even if gas and food prices are over the top for most of us. The latest Consumer Price Index report -- that's the federal government's measure of inflation -- came in at just zero point two percent (0.2%) for April, which is very low. Year over year, inflation is still only around 2.3 percent.

That's good news too, but all is not rosy.

Despite these positive signs, the fact is that consumers are still worried about the overall direction of the U.S. economy. The University of Michigan's bellwether Consumer Sentiment Index registered a 3.1 percent decline last month, continuing a steady downward trend. That's not helpful for home sales for sure -- and that negative mindset will certainly keep some buyers on the sidelines in the months ahead.

That's sort of what we're sensing locally. There are great deals out there right now, both on foreclosed houses and on regular home sales that the owners have priced to the market; however, too many buyers are sitting on the sidelines, worried about the future of their employment. Those who are out there are scooping up really great deals.

For those would-be sellers sitting on the sidelines, hoping to wait out the current market malaise, I would advise that they get on with life. Things aren't going to turn around so much and so quickly that all of a sudden all of the lost value in homes is back. That's not going to happen in this turnaround. What will happen is the start of a long, slow process of more normal home appreciation in the historic 3-4% per year vein. That means years before the houses return to anywhere near where they were 3-4 years ago and some may never make it back.

So, when will this roller coaster ride that we've been on be over? Well to paraphrase Yogi, it'll be over, when it over. We'll probably figure that out about 2-3 months after it's over. We seem to do a much better job of peering into the future by looking in the rear view mirror.