From a small northwestern observatory…

Finance and economics generally focused on real estate

Bottom, bottom, who can find the bottom?

with 2 comments

In the owner-occupied housing sector, a “bottom” seems to be like the weather — everyone talks about it, but no one seems to be able to do anything. I’ve been positing that a “bottom” (or at least “stabilization”) won’t be a reality until we get some sort of stability in the home ownershps rate, which has been creeping downward for about 5 years. If that stabilizes (and my own projection is somewhere between where it is — about 66% — and 64%), then prices will have the necessary demand stabilization to perk up.

Money Magazine, on the other hand, says “lo, the bottom is nigh”. Specifically, they say that in the coming year, 95% of home-ownership markets that they track will begin to rise. Caveats about, of course — “The median expectation among more than 100 economists and real estate pros surveyed by MacroMarkets is that home values will inch ahead by a mere 0.25%, compared to their 2011 median forecast decline of 2.8%. They also foresee annualized gains through 2015 of just 1.1%, as the real estate market slowly works its way through a mountain of foreclosures.”

Why the continued sluggishness? The folks at CoreLogic tell us that the “shadow market” is 5.4 million homes, including bank-owned properties, homes in the foreclosure pipeline that haven’t hit the market yet, or properties where owners are seriously behind on payments. Now, compare that forecasts from FreddieMac that the entire market for homes in this coming year will be 4.8 million, and that a 6-month inventory of available properties is generally thought to be healthy, and you can see the supply-demand imbalance.

Mark Fleming, chief economist over at CoreLogic, uses the analogy of a flood. “The water is very deep in the living room, but it’s no longer getting deeper and is starting to recede.”

Written by johnkilpatrick

November 21, 2011 at 9:24 am

2 Responses

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  1. John,
    I’m reading a good book, more oriented toward academic community than general public so you could better appreciate it than myself – “This Time It’s Different”. In a way it’s reassuring in that there have been something like 250 external soveriegn deafaults and 80 internal defaults (on own citizens) they’ve been able to document. I’m more convinced than ever we’re facing a lost decade at best (and depression at worst) but seeing how many countries have faced similar problems and come out the other end is somehow reassuring, tells me it’s not the end of the world. Maybe if energy production in the US continues to rise from natural gas and this “fracking” process we can one day dig ourselves out of this hole.

    Stephen Bullock

    November 22, 2011 at 4:54 am

  2. Stephen — Thanks for the comments. I can’t remember which economist said it, but it’s terrifically salient and I’ve used this quote several times in talks: “America either needs to choose to have a terrible decade or a lousy century.”

    johnkilpatrick

    November 22, 2011 at 10:19 am


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