Searching for the Bottom in Real Estate

Have we hit bottom in the real estate industry?  It's become a common question, and just like the stock market, it is very difficult to time the bottom of the real estate market.  Truth is it feels like we've been bouncing along the bottom for quite awhile now and may continue to do so until more jobs are created.   Maybe bouncing along the bottom is the new trend.  Some indicators suggest that a bottom has been achieved.  For instance, the Case-Schiller index, a good indicator of the housing industry's overall condition, is down on a yearly basis, but it showed an increase in April 2011, the first such increase since July 2010.  Some communities such as Denton, TX are showing signs of strength.  Usually, places that fare better are those that are insulated in some way from the downturn.  Denton has benefited from having several major universities within its city limits.  According to a recent Wall Street Journal article (June 20, 2011), here are some things to look at to determine if your community has reached the bottom or is making a comeback. 

Unemployment -- Jobs are a catalyst for housing and those areas with the lowest unemployment typically have stronger housing markets.  Start by comparing your local unemployment rate to the national average of 9.2%.  If it is more than 2% below the US average, chances are good your housing market is making a comeback.  Denton County, for instance, has an unemployment rate = 7.4%. (WSJ)

Rents -- Places where rents are low favor buyers and make owning a home attractive.  If home prices are less than 15 times annual rents, the market can be construed to favor buyers. 
Denton's price to rent multiple is 11, making it a favorable place to buy versus rent.

Foreclosures -- Obviously, foreclosures are the dagger to any real estate recovery.  A single foreclosure in a neighborhood can have an adverse impact on property values.  Healthier communities have fewer foreclosures.  According to Realty Trac's April 2011 report, one in every 593 units nationwide received a foreclosure filing notice.  That figure is down 9% from May 2011 and down 34% from April 2010. 
Denton Foreclosure Rate = 1.18%  (%age of properties subject to foreclosure filings in 2010).  At the peak of the foreclosure crisis, 2.23% of the properties in the US were subject to foreclosure. (WSJ)

Another factor to be considered is how much property values have declined since their peak.  Most strong housing markets have seen anywhere from 3% to 8.5% declines versus a city like Las Vegas which has experienced as much as a 50% decline in property values.  Typically, the stronger markets are those that did not see the huge run-ups in value.  Timing the bottom of the market is all but impossible and chances are good that some areas in the US will continue to see property values decline.  It seems that the worst part of the storm has passed and many markets such as Denton, TX are showing signs of strength.  Since real estate is local, the recovery rate will vary from area to area.  As a result, many areas have reached a bottom and are waging a comeback.  Other hard-hit areas seem stuck at the bottom while some areas dodged the recession altogether.  Searching for the bottom then is a regional and sub-regional affair.