carey_jim

Will Housing Bottom in 2010 or 2012?

Housing markets are obviously (also) dependent on underlying economic activity.

If the United States enters a prolonged and severe recession, the housing market will (probably) not recover until the economy recovers.

In addition, there are irrational factors which are impossible to predict or control.

It isn't easy to compare prices from different times but it is still instructive and suggestive: A house (in the San Francisco Bay Area) that cost 35 thousand dollars in 1975 cost 25 thousand, fifteen years earlier, in 1960.

Five years later, in 1980, this same house cost three times as much, or 100 thousand dollars.

In 2005 the same house cost 900 thousand dollars or about thirty times as much as its 1960 price. (Gasoline was 30 cents a gallon in 1960. Thirty times that value would put gasoline at 9 dollars a gallon.)

In 1935 the same house cost 7 thousand dollars.

However we factor in "hedonic" indexes, these very big swings in prices, which occur relatively quickly and are often very persistent, point to markets which are not always predictable or "efficient."

Demand for housing is dependent on many factors which are both rational and irrational. (Location, location and location.)

Stated in other terms, a housing bust can be just as irrational and persistent as a housing boom.

When it's all over, an economic cycle can be explained, very easily, by most economic and financial pundits but while it's occurring, it's a mystery to everyone.

(The secret of every financial guru: Claim to have predicted the most important market moves while walking and talking backwards into the future.)