Two More Reasons I Think Housing Has Hit Bottom

Last month I floated the idea that the housing market had hit its bottom. The two things I saw were: a December increase in housing prices as measured by the OFHEO, and a January decrease in the PPI for residential construction that was a lot less than it had been in prior months.

I noted that, lacking any additional data, these could be "aberrations."

Today I see two more data releases that add to the likelihood of this possibility: the PPI for residential construction fell even less in February, and housing starts increased in February for the first time since June 2008. The increase was across-the-board: seasonally adjusted and unadjusted, both single family and multi-family homes, and all regions except the West.

More boldly I said in December that I "expect to see housing construction resume next summer, if not earlier." I am sticking to that prediction.

The chart below shows why I think the construction PPI has been evolving differently so far in 2009.

click to enlarge

Comments

[Tricky:]

No discussion about affordability or relation to rents?

Mar 18 07:34 AM

[Doug Poretz:]

Whether the housing market has hit bottom (I peronally find that hard to believe) is one question -- I think the more formidable question then becomes: so it's hit bottom; what now? The likelihood is slim of a recovery that is anything more than a long-term bouncing along bottom -- I was VP for 4 years for NVR and posted my thoughts in the for-what-it's-worth department here: tinyurl.com/cvz8ky

Mar 18 08:34 AM

[Urbane Gori...:]

Please! Another 'we've hit bottom' call. We have not hit bottom. We have at least another 20% to go.

Mar 18 09:02 AM

[t-bird:]

Good that we have people like you expressing the positive attitude. To insure a healthy market we need the positive assessment.

However, I do not agree with your position and feel it will be 18 mos. or more b-4 any real bottom is reached. But we do need your opinions as we need someone to take the hit as prices continue to fall. In full disclosure, I am a Realtor, and investor.

Mar 18 09:05 AM

[ACCOUNTANT:]

I think it depends on what market you are in. IF your in selected places such as southern Califormia, Florida, Vegas, or Phoenix, it would seem that the bottom may be no where near yet.

But if your in many other parts of the country (the less over built areas), bottom has probably been hit and we may start to see some recovery this summer. How one side offsets the other, and which will prevail (going lower or going higher on a national basis) is probably anyone's guess at this time.

Mar 18 10:33 AM

[MGA_1:]

Well.. housing still hasn't hit the historical mean. Additionally, the Alt-A and Option Arm resets are going to be coming due later this year which will only add more houses to the outstanding inventories. I guess with interest rates extremely low one shouldn't be surprised that people are building houses again, but I can't see this lasting long term.

Mar 18 10:46 AM

[optionsgirl:]

If you think we have hit bottom in the housing market, I would like to offer to sell you my house. I will give you an option on it. You can fix the price, and then we will see where the house is in six months. My bet is, you would walk away from the option rather than exercise it! LOL.

Mar 18 03:13 PM

[Gtarras:]

MGA
the Fed announced today it will be helping with lower rates long enough to see us through...


On Mar 18 10:46 AM MGA_1 wrote:

> Well.. housing still hasn't hit the historical mean. Additionally,
> the Alt-A and Option Arm resets are going to be coming due later
> this year which will only add more houses to the outstanding inventories.
> I guess with interest rates extremely low one shouldn't be surprised
> that people are building houses again, but I can't see this lasting
> long term.

Mar 18 04:46 PM

[Gtarras:]

Here is a million dollar question: which is more accurate OFHEO or Case-Schiller? I personally have heard heated arguments over the question. My take is: it depends on your perspective on what areas of the country you are concerned about. Case-Schiller tends to emphasize big city center prices, while OFHEO is more "spread out"... When you are saying housing is rebounding, what do you mean by that? Housing in Midwest, or in NYC, where I happen to live? IMO, NYC just started to correct. "Urban" SoCal, otoh, is almost done. JMHO.

Mar 18 04:51 PM

[Griz:]

Upon ye I envolk a "GRRRRRRRRRR". Oh ye silly bottom callers...

Mar 18 05:51 PM

[rayngal619:]

What about all those foreclosures that will happen when the newest rescue plan fails, yet again, and the banks finally start pilling up the REO's and flooding the market. I've already seen the tip of the iceberg in my neighborhood (San Diego, CA). Two recent listing that are priced 10-15% below the price that everyone has been calling the "bottom". And those prices were already down 40% from the highs. Up to this point short sales have been dragging down prices...but they've go nothing on a good old fashioned REO firesale!

Mar 18 06:35 PM

[Mad Hedge F...:]

In your dreams. I am more convinced than ever that real estate has another 25% to fall, and best case, it is dead money for another five to ten years. The New York Times produced some insightful data on inflation adjusted home prices for the last 120 years, which baselines at a $100,000 for a single family home in 1890. Few people realize how superheated the recent real estate bubble really got. Past bubbles very consistently peaked at $125,000 in 1896, 1979, and 1989. This last one peaked at $205,000 in 2005, almost double the previous record highs. And while we have dropped 34% since then, to $135,000, we haven’t even fallen to the past all time highs yet. If you look at historical lows, my call for a further 25% slump looks positively bullish. We saw lows consistently around $66,000 in 1920, 1932, and 1942. Postwar lows came in at $105,000 in 1976, 1983, and 1996. These figures suggest the best case low is down a further 28%, and the worst case is down another 51%. I think I’ll go find something else to trade.

Mar 18 08:55 PM

[learn to think:]

With foreclosures still going up and unemployment still going up, we will not have hit bottom until housing is at least around the prehousing market boom levels. With all of those housing gains being wiped out. Look at oil,uranium,financials etc...

Mar 18 09:10 PM

[Blackeyebart:]

Perhaps the bottom we are hitting is our own!

Mar 18 09:18 PM

[sr9web:]

"Housing" hit bottom? Buddy, you are crazy.

Over the last 10 years "Housing" morphed into a hot-potato system of rotating into ever-larger, ever-newer houses, while passing the older, smaller one onto someone else. And all of it was financed by Wall St. securitizations of crappy credit loans. Any honest reading of the true financial snapshot of recent borrowers would tell you that more than 50% of the mortgage loans made in 2005, 2006 and 2007 were made on the basis of radically over-inflated incomes and over-inflated property values. And now the music has stoppped. What does that mean? It means that there no longer is an "updraft" to feed a fire of rising property values. And without rising values, unless some people actually NEED a new house, they won't move. I takes a minimum of 5-10 years of people not moving, before enough back-pressure builds to make to people want to move en-masse again. This means that prices won't begin to move up again much before 2014 or so. Bottom, schmottom. Home prices are going to stay on the canvas for at least 3-5 years from now. If you think otherwise, you are mistaken.

Mar 19 12:05 AM

[Mr. Ed, Jr.:]

The chart-- always some chart that doesn't understand that there are 2 million empty houses in this country. And I guess the chart also doesn't know that a new wave (even bigger than the last wave) of ARMs is about to start resetting. The chart doesn't know about unemployment figures, or how that leads to consumer credit defaults.

The chart doesn't know jack.

Mar 19 03:38 AM

[nojoker:]

Not likely ... builder's prices are still too high. Alt-A resets are just starting. The Federal Housing Plans have only delayed foreclosures. Yes, it will halt a few, but not enough to matter to the market.

There's still too much inventory to sell - Orlando and Phoenix are two examples. Affordability is through the roof, probably record highs in some areas. But, if you are concerned about losing a job or finding one, you are not looking for a house to buy. Affordability doesn't mean much given current economic conditions.

If it is a bottom, then it's going to be a long, long, long, flat bottom.

Mar 20 12:59 AM