anewthought

Home Sales & True Inventory: No Good News

It is also important to also consider that the pace of the price decline is also related to the pace of income growth and mortgage credit availability. These factors, along with your focus on inventory levels and the need to "absorb" the housing stock, are possibly even more important to consider.

As I think about the current situation, the realities of reaching a bottom sound even more dire considering that unemployment is probably going to rise, wages appear stagnant on a real basis and credit is increasingly hard to come by. It appears to me that the "institutional end game" is to just try to slow the pace of the housing price decline to allow for these important factors - jobs and wage growth and a renewal of credit extension - to minimize the ultimate depth of the decline.

As I write these words, I fear that the current focus on "Is this the bottom?" is really missing these weakening pillars of a hoped for managed decline. It isn't just about the number of house sales or even simply the level of inventories at this point - the discussion should be about the real factors that could help lessen the blow and how those factors are actually still in a weakening process.

For these reasons, I do not believe we are reaching the end of the housing price decline soon. Some areas of the country, yes we are reaching this point, but for other major markets, we are still in decline and the pain will likely be felt in an increasing way. That is the way leverage works, unfortunately, with increasing marginal pain along the path of decline. That is true for consumers and for banks.

1990 All Over Again?

Have you considered that your starting point for both of those graphs is June 30th - but when you look at it from a % change standpoint the correlation falls apart. Sure, if the March 08 bottom is lined up with the Oct 90 bottom - then yes, there has been a bounce off the bottom - but it wouldn't be considered a bottom if there wasn't a bounce, right.

The only parallel that seems somewhat valid in the graphs is if you overlay the Oct 90 bottom and the March 08 bottom --- then you'd see a tracing - but what comes next after those short rallies - does this market go straight up like early 91 or does it not - too soon to tell.

It all comes down to the consumer this time - probably led by jobs, the depth of the housing market and finally, the credit availability extended by weakened banks. Those the the key factors.