It's Time to Call a Housing Bottom

The Case Shiller Home Price has risen for the past three months. In fact, it rose at a 15% annual rate over the past three months, and the August value of the index was higher than it was last February. In real terms, the index has fallen almost 35% from its peak, and is back to levels first seen in March 2002. The housing bubble has popped, and could indeed be beginning to reflate.

This is very bullish news for financial markets, because it means that the health of the world's banks, and that of any financial institution which holds a significant position in mortgage-backed securities, has improved significantly. Take away the risk of falling housing prices, and you immediately improve the valuation of securities backed by residential mortgages. In addition, you improve the prospects for household net worth and consumer confidence.

Of course, many people still worry that this is not a real bottom in housing, because there is a wave of foreclosures yet to come. I think that prices have fallen by enough to stimulate demand, especially considering that mortgage rates are very near all-time lows. Housing affordability, both in nominal and real terms, has improved hugely, enough to mark a bottom, in my estimation. Demand has improved enough to absorb the wave of foreclosures.

Comments

[Jasper M:]

Negative indicator duly noted.

I'll call a bottom - in 2013!

Sep 30 02:37 AM

[Roger Knights:]

See "The Housing Bounce: Why It's Artificial" here on SA at:
seekingalpha.com/artic...

Quote: "it would seem that government subsidies to an already heavily subsidized industry, combined with a return to suspect mortgage underwriting, is largely responsible for what appears to be a modest recovery of the housing market. We know from recent history that you can move houses with loose money, so it’s of little surprise that houses are moving briskly at the low end when the incentives are thrown into the mix. Unfortunately, recent history indicates that this is tantamount to building on quicksand."

Sep 30 02:54 AM

[Lsente:]

If you don't know how to drink the Kool-Aid responsibly, I will take the punch bowl away young man---

"This is very bullish news for financial markets, because it means that the health of the world's banks, and that of any financial institution which holds a significant position in mortgage-backed securities, has improved significantly. Take away the risk of falling housing prices, and you immediately improve the valuation of securities backed by residential mortgages."

This introspection could only be the distillation of many years on the stoop, drinking that sweet red drank, smoking green shoots with your niggas. Let me let you in on a little secret, it's called FASB 157, here's the link:
www.fasb.org/summary/s...
This means that true valuation is very relative, depending on ur beverage of choice.


Asahi, Sapporo, maybe Kirin all should sound a little bit more bullish, try your introspective skills on that statement.

Keeping my TGT's very short

Sep 30 03:12 AM

[jeremiah74:]

i think you are making huge leaps of faith, when you say things like; "in my estimation. Demand has improved enough to absorb the wave of foreclosures."

maybe the bottom is in, although I dont think so. but even if the bottom is in, I dont think this particular piece of data taken in context with what we know about the economy, would be enough to conclude this

so it sounds like more hope than reason here.. which somewhat reduces the value of this article

Sep 30 05:47 AM

[LilBob:]

I have to disagree with this story also. Yesterday a story was run that compared home values to the rate of inflation, and I fully expect that over the course of the next ten years, as the Baby Boomers start retiring and divesting themselves of their large suburban homes we'll see another significant drop in residential real estate that will take home values to below the rate of inflation. Commercial real estate is another mess. I can't think of a single shopping mall near where I live that isn't either half empty, or has resorted to hobby shops, martial arts storefronts and nail salons to fill the empty space.

Sep 30 09:44 AM

[Griz:]

L-O-S-E-R

Sep 30 11:24 AM

[Tobby:]

"...in my estimation. Demand has improved enough to absorb the wave of foreclosures."

Well, let's see your estimation. Others have set out their calculations for all to see. Show us why you think the market can absorb some seven million extra housing units over the next few years. Enquiring minds want to know.

Sep 30 11:34 AM

[58robbo:]

i agree that it's time to call a bottom to real estate prices....... in nominal terms at least! is it a false bottom? i think it is because the banks are witholding mountains of inventory from the market and therefore skewing supply figures. they're doing this by not listing foreclosed real estate, stalling foreclosure on delinquent mortgages and setting prices for listed homes way above what the market will bear.

i understand that to a certain degree now is a 'good' time to buy. interest rates are low, the tax credit for 1st time buyers and if you're earning the same money you were 3 years ago, it might make sense as home prices are cheaper than they were. the question is who will take up the slack from the 9%-18% unemployment (depending which data you look at)? the interest rate could be 0% but that still begs the question, how will someone who is unemployed make their payments?

there is also the question of lending standards. to my understanding the loose lending standards which got us here have been tightened. how then is the consumer who didn't have a downpayment in the good times going to find the money to stump up the required deposit? the tooth fairy?

Sep 30 01:02 PM

[District Ba...:]

you understand that the CaseShiller numbers you are referencing do not include foreclosures, right? Do you think that foreclosure sales are a bigger or smaller part of the market today than they have been historically? If they are a larger portion of home sales today (they are) - then isn't the CaseShiller data missing some important (negative) data points?

Sep 30 02:17 PM

[Radardoc:]

As my daughter would say "OMG!!!"

Please don't hurt yourself! If you walk around with your head up your, uh, I mean in the sand, you might bump into something...like reality.

Sep 30 05:38 PM

[Thomas MacLeod:]

It is interesting to note that of the ten comments to this article all are passionately bearish/negative. This says something in itself! As templeton put it. "the best time to buy is at the point of maximum pessimism". As a contrarian I embrace the bears!

Sep 30 06:22 PM

[lower98th:]

I would be happy to show you some lovely Florida property!

I would have to say I am "all in," as I have gifted downpayments to both my (twenty-something) kids to bribe them to buy. Whatever the aggregate numbers say, much of what is selling here is 60% off the peak which takes us to about 1998 in terms of $$/sq.ft. I think we are in for a few-year slog near these price levels (no quick flips). But I also think that at the pricing of the "good deals," there is no shortage of buyers, even without (maybe especially without) the Fed. I can conclude that we need some time to liquidate the inventory at these more "rational" prices. Every attempt to jack up the market causes an exit of buyers.

On Sep 30 06:22 PM Thomas MacLeod wrote:

> It is interesting to note that of the ten comments to this article
> all are passionately bearish/negative. This says something in itself!
> As templeton put it. "the best time to buy is at the point of maximum
> pessimism". As a contrarian I embrace the bears!

Sep 30 06:45 PM