Since the beginning of the house-price crash in 2007, analyst after analyst has predicted that “the bottom” in house prices is just around the corner – only to be wrong every time.

But now, finally, it looks as though house prices may actually be nearing a bottom.

Why?

Because, after falling nearly 35% from their 2007 peak, nationwide house prices are finally approaching “normal” levels on two key valuation measures: The “price-to-rent ratio,” which measures house prices relative to what the houses might rent for, and the “price-to-income ratio,” which measures house prices relative to average incomes.

Using the first ratio, economists at Goldman Sachs have concluded that national house prices will decline another 2.5% in 2012 and then bottom over the course of the following year.

(To see a recent chart of the national price-to-rent and other ratios, please click here.)

House prices differ markedly depending on where you live, of course, and Goldman’s analysts have considerably different predictions for different markets. Prices in New York, Portland and Atlanta, Goldman predicts, will still see significant declines. While prices in Detroit, Miami and Cleveland should rise.

Importantly, after a price bubble similar to the one the U.S. just experienced, prices often don’t stop at “average” levels on the way down. On the contrary, they often plunge straight through “fair value” and spend years below average levels. And that certainly could happen to house prices this time around.

But Goldman’s economists believe house prices will level out in a year or two. And unlike other analysts who have made similar predictions in prior years, Goldman’s economists actually have data on their side: The price-to-rent ratio really has fallen to normal levels.

Of course, even if house prices do bottom in 2013, that doesn’t mean that they’ll quickly shoot up again – or that housing will once again be the “great investment” that everyone thought it was back in the boom years.

One of the reasons house prices are expected to bottom soon is that houses are currently more affordable than they have been in the past. But housing “affordability” is judged, in large part, on mortgage rates, and mortgage rates are currently near an all-time low. If and when the economy begins to recover in earnest, mortgage rates will likely rise, and, as they do, houses will become less affordable.

So it is likely that, even after they bottom, U.S. house prices will face headwinds for a long time.

Help with a down payment

With most lenders requiring borrowers to put down at least 20 percent as a down
payment – unless using an FHA or VA loan, or purchasing mortgage insurance –
the best holiday gift some people might receive would be help with a down
payment on a house.

Making sense of the story

• According to a survey by
  Trulia, the biggest barrier to buying a home these days is saving for the
  down payment.  The survey, conducted over the summer, found that 51
  percent of renters said coming up with money for the down payment was
  preventing them from buying, while 35 percent identified qualifying for a
  mortgage as the stumbling block.
• Under federal tax law, each
  individual is permitted to give money or valuables worth up to $13,000 to
  a single recipient in a calendar year.  A married couple could
  jointly bestow up to $26,000 a year per recipient.
• According to one financial
  planner, there also is the option of lending a relative or close friend
  the money for the down payment, or the closing costs, then forgiving the
  loan in a future year.  The recipient would have to pay interest on
  the loan until it was forgiven, at which point it would become a gift.
• Another way to help with the
  down payment is to pay other expenses, such as tuition, thereby freeing up
  money to make a home purchase.  Gifts for educational or medical
  expenses are not subject to taxes, as long as they are paid directly to
  the educational or medical institution.
• However, prior to giving the money,
  gift-givers should consider their own financial picture, and they should
  make sure the recipient is responsible and not behind on other payments
  that could be subject to debt collection.

NEW YORK (CNNMoney) — Happy holidays struggling homeowners! Fannie Mae, Freddie Mac and several large mortgage lenders have pledged not to foreclose on delinquent borrowers during the Christmas season.

For homeowners with loans through Fannie Mae (FNMA, Fortune 500) and Freddie Mac (FMCC, Fortune 500), the moratorium will run from Dec. 19 to Jan. 2. During this time, legal and administrative proceedings for evictions may continue, but families will be allowed to stay in their homes, Fannie said in a statement.

“No family should have to give up their home during this holiday season,” said Terry Edwards, an executive vice president for Fannie Mae.

Among some of the major banks that offer mortgage loans, Chase (JPM, Fortune 500) Mortgage said it will not evict anyone between Dec. 22 and Jan. 2. Wells Fargo (WFC, Fortune 500) will also suspend evictions during that period, but will not shut down its eviction machinery entirely.

The bank said it will observe the moratorium on foreclosed properties in its own portfolio but for loans it services for other lenders “foreclosure-related actions may still occur.”

Bank of America (BAC, Fortune 500) said that it would “avoid foreclosure sales or displacement of homeowners or tenants around the Thanksgiving and Christmas holidays.”

Why Fannie/Freddie execs get paid a lot

However, that policy only applies to loans the bank itself owns. Like Wells Fargo, it will also honor the wishes of the owners of the loans it services, which could mean moving forward with certain foreclosures.

A holiday halt on foreclosures by the major mortgage lenders could affect tens of thousands of homeowners. An average of 89,000 foreclosure auctions a month have been scheduled this year, according to RealtyTrac. Once a home has gone through that process, eviction is the next step.

Home prices and mortgage rates have fallen so far that the monthly cost of owning a home is more affordable than at any point in the past 15 years and is less expensive than renting in a growing number of cities.

The Wall Street Journal’s third-quarter survey of housing-market conditions in 28 of the nation’s largest metropolitan areas found that home values declined in all but five markets compared with the second quarter, according to data from Zillow Inc. Meanwhile, rent levels have risen briskly across the country and mortgage rates, hovering around 4%, are the lowest in six decades.

As a result, monthly mortgage payments on the median priced home—including taxes and insurance—are lower than the average rent levels in 12 metro areas, according to data compiled for The Wall Street Journal by Marcus & Millichap, a real-estate brokerage that tracked 27 metro areas. It remains less expensive to rent than to buy in 15 cities. But affordability hasn’t done much to lift the sagging housing sector because many would-be buyers are unwilling to purchase a home or unable to qualify for a mortgage.

“It’s one of the most striking developments of the housing downturn,” said Paul Dales, an economist at Capital Economics. “The initial building blocks for a recovery are in place, but the legacy of the recession is really preventing households from taking advantage.”

In Atlanta, which had the most favorable values for owning versus renting, the monthly payment on the average home was $539 assuming a 20% down payment during the third quarter. By contrast, the average asking rent stood at $840, according to the Marcus & Millichap data.

But real estate agents and economists say the trend hasn’t boosted demand. That is because affordability alone hasn’t been enough to overcome the obstacles in the way of a housing recovery. Some homeowners who would like to move up to larger properties are stuck because they can’t sell their homes.

Also, while the monthly carrying costs on a mortgage are lower than average rents in some cities, home ownership carries other costs—including taxes, insurance, homeowner association dues and maintenance—which may dissuade some potential owners.

Other would-be buyers can’t qualify for mortgages because lending conditions are tight or because they don’t have enough equity in their current homes to use as a down payments. “The reality of coming up with the down payment and the loan-qualification standards makes things much different than the raw numbers suggest,” says Hessam Nadji, managing director of Marcus & Millichap. And even those who may qualify remain skittish about buying property in a market where prices could fall amid  foreclosures and weak job growth.

Ryan Young illustrates the point. He is under contract to buy a three-bedroom home in Washington Grove, Md., that will have monthly mortgage, tax, and insurance costs for around $150 less than the $1,900 he is paying to rent a slightly smaller house in Bethesda, Md. He qualified for a 30-year mortgage with a 3.95% fixed rate. Still, Mr. Young says he is cautious about owning his first home with the prospect of future price declines. “Buying a house is not a good financial decision, per se, but we needed a bigger place,” said the 35-year-old scientist, “and we don’t want to move every couple of years into a new rental.”

Other cities where owning is now cheaper than renting include Detroit, Minneapolis, Orlando, Las Vegas, Miami, St. Louis, Chicago and Phoenix.

Home ownership is also looking more affordable because after several years of declines, apartment rents will rise by around 4% this year, says Mr. Nadji. He says rents are poised “to pick up even more momentum across the country next year.”

Even cities where it is still cheaper to rent than own have seen big boosts in affordability. In San Diego, the monthly cost of owning a home has averaged around 83% more than renting over the past two decades. During the third quarter, owning was 22% more expensive than renting, according to John Burns Real Estate Consulting.

Mortgage rates are a big reason why affordability continues to improve. In 1991, a $1,700 mortgage payment allowed a borrower to take out a $200,000 mortgage. Today, it gets that homeowner a $350,000 loan, a 77% increase in borrowing power, says Dan Green, a loan officer with Waterstone Mortgage, in Cincinnati. At the same time, low mortgage rates aren’t spurring sales because few analysts expect rates to rise anytime soon. The Federal Reserve in August said it would keep rates at ultralow levels for two years. In a normal interest rate cycle, “when they go low, they don’t stay for very long, and people jump in,” said Mr. Dales. “This time, there is no urgency.”

Affordability could continue to improve as prices slide even lower in coming months. Price declines are likely because the share of “distressed” sales, including bank-owned foreclosures, tend to rise in the winter, when traditional sales activity cools. Banks are often much quicker to cut prices to unload properties quickly, which means that the greater the share of “distressed” sales, the more prices tend to fall.

One hopeful sign is that inventories have fallen from their bloated levels of one year ago. All 28 cities in The Wall Street Journal’s latest survey saw homes listed for sale fall from one year ago, when markets were reeling with a substantial overhang of properties amid a big drop in demand. Visible inventory was down sharply in several markets, including by almost half in Miami and 40% in Phoenix.

Low inventories have spurred more bidding wars at the low end of the market as investors compete for homes that they can convert into rentals. In Sacramento, it would take just 2.5 months to sell the listed inventory at the current sales pace. Las Vegas has a 4.3 month supply of inventory, according to John Burns Real Estate Consulting. But the potential supply of homes is much bigger because banks have yet to process hundreds of thousands of potential foreclosures.

NEW YORK (CNNMoney) — Homebuyers scooped up more previously owned homes in October, slowly putting a dent in the huge inventory on the market, an industry report showed Monday.

Sales of existing homes rose 1.4% last month to an annual rate of 4.97 million homes, up from a downwardly revised 4.90 million homes in September, the National Association of Realtors reported Monday.

That was higher than expected. Economists polled by Briefing.com had expected an annual rate of 4.85 million homes in October.

Compared to a year ago, the rate of existing home sales has jumped 13.5%, from 4.38 million units.

Continued gains in home sales have lightened up the inventory of homes on the market, the report showed. Total housing inventory at the end of October slipped 2.2% to 3.33 million existing homes for sale, representing an 8-month supply at the current sales pace. That’s down from an 8.3-month supply in September, and continues an ongoing downward trend since hitting a record high of 4.58 million in July 2008.

Housing in 2012: Things are looking up

Foreclosures and short sales dropped to 28% of sales in October, down from 30% in September.

Even as the stockpile of homes on the market eases, housing prices are continuing to dip. The median price for an existing home was $162,500 in October, 4.7% lower than a year ago.

That means it’s still a great buying opportunity for house hunters. But one of the problems preventing the housing market from making a full recovery is that many of the homebuyers attempting to buy houses are seeing their mortgage applications rejected, said NAR chief economist Lawrence Yun.

Contract failures, which include declined mortgage applications or failures in loan underwriting because of problems including appraised values coming in below the negotiated price, jumped to 33% in October, up from 18% in September.

“Home sales have been stuck in a narrow range despite several improving factors that generally lead to higher home sales, such as job creation, rising rents and high affordability conditions,” said Yun. 

Gradual improvement in the housing market is expected next year, with
existing-home sales edging up 4% to 5% and new home sales getting an even bigger
boost off this year’s record lows, the chief economist of the nation’s largest
real estate group said Friday.

“Tight mortgage credit conditions have been holding back homebuyers all year,
and consumer confidence has been shaky recently,” Lawrence Yun, chief economist
of the National Association of Realtors, said. “Nonetheless,
there is a sizeable pent-up demand based on population growth, employment levels
and a doubling-up phenomenon that can’t continue indefinitely.”

Yun, who made his comments during the annual NAR conference for real estate
agents under way in Anaheim, Calif., projected gross domestic product growth of
1.8% for 2011, rising to 2.2% in 2012 with the unemployment rate declining to
8.7% by the second half of 2012.

Mortgage interest rates, he predicted, would gradually rise from record 2011
lows to 4.5% by the middle of 2012.

“Very favorable affordability conditions will dominate next year as well,
which will probably be the second best year on record dating back to 1970. Our
hope is that credit restrictions will ease and allow more homebuyers to take
advantage of current opportunities.”

Existing-home sales are forecast to edge up about 1% this year. Based on
NAR’s current projection model, existing-home sales would total 4.96 million in
2011. NAR is revising downward existing-home sales totals in recent years
although it expects little change to previously reported comparisons based on
percentage change.

New-home sales for 2011 are projected at 302,000 this year, a record low,
with expectations that they will rise about 23% to 372,000 in 2012.

Housing starts are forecast to rise about 8% to 630,000 from 583,000 in
2011.

With falling inventory, the median home price should rise in 2012, he said.
“Home prices have yet to show a definitive stabilization pattern in most areas.
Still, given an over-correction in prices, there likely will be moderate
appreciation in 2012,” Yun said.

Richard Peach, senior vice president at the Federal Reserve Board of
New York, said the economy continues to disappoint. “Among the
significant structural impediments are the legacy of the housing boom and bust,
and fiscal contrition at the state and local level.”

He promoted moving foreclosures by giving incentives to military
servicemembers.

“My idea is to allocate certificates to 2.5 million service members who
served in Afghanistan and Iraq that could be used as a down payment on a
foreclosed home in the Fannie or Freddie
portfolio,” he said.  This would help to absorb the inventory and stabilize the
housing market.

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