Is the Bottom Already Behind Us?
A hedge fund manager who wrote an op-ed piece in the Wall Street argues that it is. His opinion is explicitly spelled out in the title: The Housing Crisis is Over. He argues that last month, April 2008 will most likely mark the pit of the housing downfall. Now that we are already in the early days of May – that means we’ve already 
turned it up a notch.
Some interesting facts:
- The current bust is already 3 years old.
- Home sales peaked in July 2005 and has dropped 63% since this peak
- Housing starts have dropped 50% and are back to one of the historical bottoms
Interestingly, the writer points out that affordability is the factor that led us into this bust and will lead us out of it. As home prices now are declining to somewhat more relatively managable (dare I say affordable!), buyers will come back. The percentage of income needed to make the average mortgage payment has gone back to the levels of the 1990s. While home prices have been on the decline, personal income has still creeping up, so that should help too.
The arguments and data make a lot of sense. I’m not sure what to make of it. In Marin, it seems like those $1 million+ homes that are in the best locations are still going quickly. Homes that I’ve seen and like and hoped that the price will drop after lingering on the market aren’t really hanging out for long at all. That’s just my thoughts on Marin and the general bay area. But when I think about the national housing outlook, it doesn’t seem to feel to me that the national bottom already came and went. I just hope home prices don’t ever sky rocket out of reach again (though they still seem out of reach).
sw said:
The author of that article is referring to new home sales being at a bottom, not existing homes. Also, he’s very wrong.
http://calculatedrisk.blogspot.com/2008/05/is-housing-crisis-over.html
May 7, 2008 8:35 AM
Philip Kaake said:
Jenny P: This is an interesting article… do I believe it, not yet. However as an agent I can tell prices have come down and buyers start buying homes. It’s happening, activity is happening in my market and I know it is in other areas as well. I don’t think it will happen as fast as this guy predicts, but I also think if you are waiting for the bottom because you think you will get just that much better of a deal you may miss out on opportunities happening now. If anyone thinks they know exactly what is going to happen to this market they are probably speculating based on their own personal wishes.
May 7, 2008 8:48 AM
David said:
Prices are approaching, but only approaching, historical norms in the inner East Bay. Of course this guy is talking nationally, but nationwide, prices are also only approaching historical norms (price/income, price/rent). R.E. is not a bargain yet by any measure, it’s merely 10%-15% above historical trends in a lot of areas, including the inner East Bay, and I might posit nationwide too. Of course that means a 10%-15% drop in real prices are coming, likely over the next 12-18 months, which means a 7-12% nominal drop, or likely at least half of your down payment will evaporate over the next year if you buy now.
If you must buy now, at least you’re probably only slightly overpaying (except in SF&peninsula, where you’re significantly overpaying).
The evidence? His own numbers–sales numbers are still down huge. If it the market were rebounding, sales would be leveling off and possibly increasing. They’re not.
In any market, there are a few bargains. There are bargains now, and they are getting bought, once again proving that prices need to come down more to restore “normal” sales numbers.
May 7, 2008 10:13 AM
david g said:
Ha. This coming from a hedge fund manager. He is absolutely wrong. Plummeting sales and pricing does not stop on a dime.
Plus, a national bottom doesn’t mean much anybody. It’s the local bottom related to where you live that matters.
May 7, 2008 11:22 PM
David said:
Yeah, I figured the guy was pumping the homebuilders he bought “at the bottom” recently.
May 8, 2008 1:02 PM
david.g said:
Exactly. People in his position can and do try to influence markets, but I don’t think he has the clout! He obviously has an agenda.
May 8, 2008 2:22 PM