There was an article in the Wall Street Journal this week (December 13, 2006) which suggested that first-time buyers were starting to look at homes again. The reasoning was that prices had come down a little and affordability was better. It was an interesting read because all the positive news it put forward was anecdotal (mostly sound bites from real estate agents), while the offsetting negative news they included had some concrete fact behind it.

As I opined in a previous posting in June (An Orderly Decline of the Housing Market? Not), I don't believe that it's realistic to expect a modest and/or short down cycle for U.S. housing. Cycles that go on for a long time and reach extreme levels (in price and psychology) take time to correct. It's unrealistic to expect otherwise.

In any case, the WSJ article had some interesting stats in it. Last year in the U.S., 43% of first-time buyers put no money down. This year, the number is 45%. Wow!

The article also had a table showing the "Rent vs. Own" ratio. If the ratio is below 1, then owning is more expensive. If it's above 1, renting is more expensive. In 2001, the ratio was neutral at 1.02. In the 3rd quarter of this year, the ratio was 0.79, which heavily favours renting. Interestingly, the "Own" calculation only includes principal and interest payments on a 30-year mortgage. No other expenses, such as insurance and property taxes, are included. Whether this ratio has improved or not, it doesn't look to be very encouraging to first-time buyers.

I can't help but feel that we're experiencing a dead cat bounce in the U.S. housing market. Much like equity investors who started buying tech stocks after they dropped 20, 30 or 40% in 2000 and 2001, I think the optimists are premature on housing as well. House prices aren't going to decline like tech stocks, but they will go down some. But more to the point, it could be a long time before they go up in a meaningful way.