The Bottom, According to Jim
CNBC’s colorful financial guru Jim Cramer, who has a pretty good track 
record when it comes to housing-market predictions, made another one this week: The housing market will bottom out in the third quarter of 2009.
One reason for his prediction: The stock price of the nation’s top home-building companies, such as Pulte and KB Home, peaked one year before housing did, in July 2006. The charts say that those stocks hit bottom last month — three years after they peaked — so he thinks the overall market will do the same.
Cramer’s got street cred when making calls on housing. Remember when he told you last year that anyone who bought a home then would lose money on the purchase? They did. (Remember how the National Association of Realtors freaked out when he said that?)
Cramer lists a bunch of reasons why he thinks the market is bottoming out: inventories are getting lower; mortgage rates will come down when Fannie Mae and Freddie Mac are taken over by the government; most teaser-rate loans will reset this year; and demand for housing will continue to increase.
It’s important to keep in mind that Cramer is talking about the national market. Here in California, the outlying areas, such as the Inland Empire and Central Valley, likely have already hit bottom. But the higher-end areas, particularly Orange County, may still need to fall more. Prices are still out of reach for a great many buyers.
Furthermore, hitting bottom doesn’t mean we’ll bounce right back up, like a 
SuperBall. More likely, we’ll land with a thud and sit there for awhile, like a sunken ship, until incomes increase and the economy settles down and people become more comfortable buying.
Hope you all have an enjoyable and safe Labor Day weekend.
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Ed Harris said:
I’ve been following Cramer for longer than I’ve been following the housing market and he’s made many predictions before that turned out to be incorrect. He’s been right many times but he’s also been wrong about as many times. Don’t get me wrong, I’m a big fan and his reasoning is correct but I would take his predictions with a grain of salt.
August 29, 2008 10:23 AM
Andrew Waite said:
We called the bottom of the market first quarter 2008 when the inventories began to contract in individual markets nationwide. We analyze the facts and relationships between three numbers: Inventory expansion or contraction and pending contracts and recorded sales. This is traditional Wall St projected market performance analysis.
There is a desire to look for a date when there are leading edge, market mass and trailing edge indicators. They do not move in lock step and at different velocities. The leading edge started moving March 08 and the trends have remained positive through July or consistent for 4 months since then.
We do it by MLS block nationally with the help of Marketopoly. Our website http://www.PersonalRealEstateInvestorMad.com has a summary. This is covers a substantial 65% sample of all housing stock.
Cramer is a wild man and a traded asset maven so using housing stocks as a non-traded asset indicator is totally bogus as is most of the housing data out there.
Consider this: Wall Street reporting (traded asset measurement) has 100% sample every day on the theory 100% on the market is in trade at the right buy price.
5% of home stock is historically in trade in any 12 month period so less than .05% of housing moves in a 30 day period. Any credible statistician would laugh you out of the room for using a statistical sample like that to impute universal market movements and value.
The real estate industry has been sucked into reporting non-traded assets in the manner and at the tempo Wall St reports paper trades. Big error.
It is understandable why the “Bunnies” accept most housing bad news as gospel as they are bereft of planning and forced a simplistically short view. There are so many good contradictory examples. People have been distracted by the transaction data (RE industry numbers are down) instead of real housing value data.
This ugly correction is affecting those Boomers and Gen X, Y and Mellenial’s who bought into an unsustainable model. Those who bought a home as a utility and a histroic five to seven year hold will be hardly affected.
I have an investment condo I bought for $230K in 2006 that if I was to sell it today would be lucky to get $150,000. However it is cash flow neutral, bought as a 5 to 10 year hold or possibly future second home. That was the plan when bought and the plan today.
The message is speculating in anything, including leveraged real estate is ill advised. Real estate and 90:10 LTV mortgages can go backwards fast if you are using housing as a trading model or are forced to sell at an undesirable point in your local housing cycle. The financial dynamics of residential real estate is not that of a traded asset therefore don’t fall into the Bunnie trap of comparing homes to paper assets.
Best: Andrew Waite
August 29, 2008 10:53 AM
Andrew Waite said:
Oops fast fat fingers put in a bad URL for the trend data….
http://www.PersonalRealEstateInvestorMaG.com
Sorry. Andrew Waite
Publisher
Personal Real Estate Investor Magazine
August 29, 2008 10:56 AM
currentlyrenting said:
Mr. Waite.
If your property is valued at $150,000 right now and you plan to hold it 5 more years, you would need 10% appreciation just to bring it back to the price you paid. You are assuming the bottom is not only already in, but that prices are going to bubble again for 5 more years, and this is just to break even. You are rationalizing a bad purchase. If it truly does cashflow (you have retarded renters if it does) then selling it in 5 years makes no sense. If it doesn’t cashflow, buying it in the first place was a huge mistake. I’m sorry to burst your personal bubble, but reality seems to have been incapable of doing so.
August 31, 2008 10:39 AM
Klutz said:
Jim is a funny guy and fun to watch. Sometimes he’s right and sometimes he’s not. That strange prediction came from looking at stock charts of the home builders. As it’s been said many times you can make a ton of money reading stock charts…if you own a time machine because they only tell you what’s already happened. In case you were wondering when the bottom will be I will tell you because it is the same with every bubble:
When people stop justifying and are embarrassed about the investment condo they bought, when you’re willing to let it go a fraction of what you paid because it’s physically painful to look at, when people stop discussing “the bottom” as if it’s ready to ”
“rebound” and when the most vocal and ardent believers in real estate (a b-list asset class) finally give up. In short, when there is capitulation that it was a moment in time and won’t be coming around again. That will be your bottom because that is MAXIMUM negativity and it won’t happen any sooner than that.
Are we there? Judging by your post I would we’re not even close. Is Jim right? Who knows! Maybe he is! It’ll be fun to watch while I “currently rent” as well.
September 1, 2008 3:08 PM
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September 5, 2008 12:29 PM