You can watch the evolution of the housing markets in the news on housing starts and building permits. Single-family building permits are actually rising, while multi-family tanked. This seems to indicate that residential housing has bottomed, and families who feel relatively stable are prepared to build. But investors--or their backers--aren't willing to bet on demand for either rentals or condos in the near term.
That backs up what we're seeing in the housing market here in DC as my mother goes looking for a house. There's a huge glut of condos in the U Street corridor, where I live, because developers all thought they had found a sure get-rich-quick scheme. They're competing each other's prices down to levels where the developers can't be making much money; the condo across the street from me seems as if it's about to be seized by the investors, having sold less than 20% of the units. But multifamily is more idiosyncratic, and as the summer wore on, most of the houses on the market made some kind of deal.
But DC is, comparatively, a boom market. In most places, inventories have shrunk somewhat, but there's still months and months of housing supply on the market.
The real question is: what happens next year? People still have something of a bubble mentality. They want to get in now, when things are cheap, because they expect that we'll return to the housing price inflation of the 1990s, if not the last decade. But it's far from clear that this is so. Rising house prices accompanied a number of secular trends, like falling interest rates and the growth of the subprime market, which have basically run their course. Further growth in most areas is going to have to bear some relationship to the growth in incomes.
So I think that this year's buyers priced in some future gains. But what happens when next year's buyers refuse to price in even higher future gains, and demand to buy at this year's price? If the market gets the idea that no, the days of housing as an investment opportunity really are over . . . well, prices will stagnate, or even fall further.
Not that I think that would be a bad thing. The mania to buy the biggest house you can, now, lest you be priced out of the market forever, isn't very sensible. There are good reasons to want to own a home. But they have to do with the ability to customize your home environment in a way that renters usually can't. Investment dollars are better put into something that might actually enhance our national productivity.