Why I Think the Housing Bubble Has Not Yet Bottomed

I have a desultory interest in possibly entering into the happy state of homeownership, so I get the MLS listings for my favorite zipcodes emailed to me.  This one appeared in my inbox this morning, and it seems to encapsulate everything that is still wrong with our current housing market.

FABULOUS NEW PRICE. Sunny, renov. corner apartment listed at NEW LOW PRICE to sell quickly. Almost 1000 sq ft w/ old world charm and fabulous light. Great roof deck, front desk, near metro. No pets. Seller will pay one year's condo fee.

What, you may ask, is this fabulous new low price?

CURRENT LISTING PRICE HISTORY
Date	Price	% Change	Days at Price
5/15/2009	$499,000		26
6/10/2009	$495,000	-0.8%

That's right--they've dropped the price almost 1%.  Perhaps you did not want this house at $499,000.  But now that it is $495,000 how can you resist acquiring two small bedrooms and a bathroom on an okay block?  Assuming a 10% downpayment and a 30-year mortgage at a 7% fixed annual rate, you could save nearly a dollar a day--almost the price of a cup of coffee (if you are not picky about where you buy your coffee)--off of your roughly $3,000 monthly payment.

Snarking aside, check out what the buyers paid for the place in 2005:

10/4/2005

$460,000

-$5,000

$455,000

They bought near the height of the bubble.  Yet they think their house has appreciated by nearly 10% in the intervening four years.  Maybe they did a hell of a renovation, but usually buyers who have extensively renovated advertise that fact.  And they're not in a gentrifying neighborhood--Kalorama gentrified decades ago.

People's expectations still have pretty substantial price increases baked in.  Until people let go of the assumption that offering a mere 2.5% annual profit from the market's peak is a real bargain, prices will not have bottomed.