Housing Bottoms, Real and Imagined

A great opening from a piece on Pragmatic Capitalist: “There have been numerous media stories out over the last couple of weeks about the recovery in housing at long last.   Of course, this is the same housing bottom call that we heard in 2009, 2010 and 2011 – so why not drag it out again for 2012.  Eventually, the call will be right and they will be anointed with oils and proclaimed to be the gurus that called the bottom.  In the financial world you only have to be right once.”

Fortunately for me blogging doesn’t even require meeting that standard. When I look at the charts I see a bottom, but not the bottom. Frankly, if the housing charts were stocks nearly everyone would be calling it a dead cat bounce but when it’s a housing chart a very anemic bounce becomes the bottom. A bounce after a large drop should be energetic and in some sense proportional to the decline if it’s a real reversal – something that would get the attention of Sir Mix-A-Lot instead of the pancake flat one shown in the current charts.

I think we are years from a true bottom in housing prices. We’re really only in the first phase of value investors jumping back into the worst-hit markets. They still need to have their hopes dashed and get flushed out to pave the way for the real vultures to begin accumulating. Sales volume typically turns several years before prices move up significantly and even if you believe NAR numbers that’s still a long way off. Property cycles last 18 years on average and the bubble phases tend to be relatively short, leaving a decade or more for the bust phase in a typical cycle. Unfortunately this was anything but a typical cycle and I expect the government takeover of the mortgage market to delay the process even further.

There’s no hurry to pick a bottom. Secular down trends tend to change when nobody cares any more, not when everyone is still talking about it.


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