Too Soon to Call a Housing Bottom
Consensus seems to be that the housing market bottomed. The statistics on national home sales and prices are the key to consumer recovery, so it is hugely important.
But I have my doubts.
According to the analysis of Mark Hanson from the Field Check Group, 2009 existing home sales exceeded 2008 by 45,000 units for June and July. With expectations very low, this was taken as reason for great optimism, even though January to May 2009 were the weakest first five months in many years.
But in order to get this small improvement, herculean efforts were needed: A trillion dollars to keep rates down, and hundreds of billions in massive tax credits, mortgage modifications and foreclosure moratoriums, inter alia.
In addition, conditions this year were ideal: Prices were low as some cities suffered a decline of 50% to 70%, mortgage rates are at rock bottom and there is plenty of supply. And yet only an additional 45,000 out 2.8 million housing units sold so far year. Is that a good reason to deduce that housing has bottomed?
Now, the low cost supply of foreclosure has dried up, as banks are postponing them as much as possible. With so many people believing the worst is behind us, a miss next month could disappoint and deliver a body blow to the cheery consensus.
If you look at historical prices, the housing bubble started in 1997, when housing diverged from a historical range of average price of 12 to 14 times prevailing rents, dating back to 1953. It was 15.2 times by the end of the tech bubble in March 2000. After the Fed's reaction to the events of Sept. 11, 2001, the price to rent multiple of U.S. homes climbed to an unprecedented peak of 25.6 times at the end of 2005.
To revert back to the mean and work off the housing glut, prices will need to fall back to the historical range. We are not there yet.
Alan Schram is the Managing Partner of Wellcap Partners, a Los Angeles based investment firm. Email at aschram@wellcappartners.com.
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The latest news on property data and Home Prices should not come as a surprise and we should not begin celebrating an end to the crisis. In our article Cyclical, Seasonal and Emotional www.accuri
The latest news and public records indicate that these critical phases are performing to historical levels. That is, the summer seasonal market is showing a correction to the cyclical change that began in 2007. Now the million dollar question is, will the fall seasonal market (which affects Florida, Arizona and Nevada) continue to show recovery or will the markets pause until the next “Selling Season in 2010?”
Our report: Housing in Crisis (published in March 2009) addressed the broader issue of excess housing. Again, there is good news on this front. The excess housing is being absorbed at an annualized rate of about 1 million units. Having a glut of 5 million units at the end of 2008, this means we have another three to four years before the overall markets start to recover.
Housing Recovery is the focal point here. We predict that the Northeast will continue to show stability, with modest corrections in local markets from 3% to 5% through the end of 2010. The Midwest remains strong and will experience similar stability.
"The latest news on property data and Home Prices should not come as a surprise and we should not begin celebrating an end to the crisis. In our article Cyclical, Seasonal and Emotional, we discussed the three critical phases of real estate selling patterns that have attributed to the housing bust.
The latest news and public records indicate that these critical phases are performing to historical levels. That is, the summer seasonal market is showing a correction to the cyclical change that began in 2007. Now the million dollar question is, will the fall seasonal market (which affects Florida, Arizona and Nevada) continue to show recovery or will the markets pause until the next “Selling Season" in 2010?
Our report: Housing in Crisis (published in March 2009) addressed the broader issue of excess housing. Again, there is good news on this front. The excess housing is being absorbed at an annualized rate of about 1 million units. Having a glut of 5 million units at the end of 2008, this means we have another three to four years before the overall markets start to recover.
Housing Recovery is the focal point here. We predict that the Northeast will continue to show stability, with modest corrections in local ma rkets from 3% to 5% through the end of 2010. The Midwest remains strong and will experience similar stability.
Recovery and Stability are the focal points and we should start to see signs of this in the upcoming months."
House prices will go down for 3 years.
The real bear coming is the commercial real estate crash.
For someone who does market analysis, I am shocked by the amount of so called experts who continually predict a bottom to the housing market. Housing prices will not bottom until the foreclosure inventories are reduced to a 2-3 month inventory. We've worked thru the subprime delinquencies (2/28s, 2/27s), but are now working thru prime delinquencies due to the economy (unemployment, etc.). What seems to be off the radar screen is that the bulk of the Option ARMs will reset in 2010. As a result, additional foreclosures will be adding to an already bursting inventory.
The housing market will not bottom until approximately 2013 and the recovery will be U-shaped. In essence, the market will bottom and stay there for several years.
A few miles from our Oakland, CA house sits 44 Sierra, Piedmont, CA, which recently sold for 2.5M and is now on offer for rent at $5000/mo on Craigslist, down from $7000 (no takers).
If it rents, that's purchase price = 500x monthly rent. And gross rent = 2.4% of purchase price, probably 0% return after expenses. If it was financed, it's losing on the order of $10-12,000 a month.
Bubblicious! Or, "It looks like dog *^&%$, smells like dog %&*#$&%. Good thing we didn't step in it."
I'm staying out.
Smart move Sundial - If you don't have to buy for some reason at this point,... don't unless you can get something waaayyy below current market value as a short. And then only do it if you can get a fixed rate and plan on camping out there for 5-7 years.
Not with the looming wave of foreclosures coming in 2010-2011. Housing won't recover until 2013 at the earliest.
The US housing market has not hit bottom and, depending on which view you take, has quite some room to move down further. The truth is that we are still in the middle of a historic crash.
"There are four items in place that are tricking people into calling a bottom, when in fact three of these items are temporary. The result is an artificial restriction of supply and artificial pumping of demand.
1) It’s the seasonally strongest buying season
2) There’s a foreclosure moratorium about to end
3) Federal tax credits offered for 1st time homebuyers
4) Historically low mortgage rates (this may or may not change soon)"
Read More: http://www
When a person can afford a home on a teachers salary, then the prices have dropped enough.
Good article. Based on other things I've read, I agree that the bottom calls are premature.
Regarding the home price:rent ratio, who's to say that it won't be narrowed not by home prices falling, but by rents rising? When the banks finally kick people who can't pay the mortgage out of their house, they're going to turn elsewhere -- likely to renting. That increased demand might push up rent prices.
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