Wikinvest Wire

Irrational housing market exuberance

Thursday, December 11, 2008

Remember this - it's important.

Multi-year, almost decade-long trends do not reverse themselves in a V-shaped bottom as some might have you believe today regarding the housing market.

The bottom in housing, when it comes, will be marked by a distinct lack of interest rather than the frenetic bottom-calling that has persisted for the last few years now.

The way you'll know that a bottom in the housing market has arrived is when you don't hear anyone talking about it. When the hopes of the last optimists have been dashed (the eternal optimism of real estate sales types excluded), that's when we'll have reached the bottom.

Based on yesterday's irrational housing market exuberance in the mainstream media, the bottom is still probably at least a couple years away.

To wit:

LV home sales soar in November - Las Vegas Review Journal

The bottom of the Las Vegas housing market appears to be taking shape late in the year. Home sales have improved and inventory has been reduced. Prices continue to fall, but the rate of decline has dropped under 3 percent for the last two months.

The Greater Las Vegas Association of Realtors reported 2,183 single-family home sales in November, more than double the 968 home sales in the same month a year ago.

The number of homes available for sale declined 3.1 percent to 22,770 in November from a year ago and the median home price fell 32 percent to $186,000. The price is down just 2.1 percent from October.

It's the third straight month that home sales have doubled from a year ago. That trend is expected to slow during the Christmas holidays, said Patty Kelley, president of the Realtors association.
You'd be well-advised to dismiss sales volume rising from historically low levels based on an unusually large number of foreclosures as a sign of a bottom.
Wells Fargo CEO sees progress in housing market - BusinessWeek

Wells Fargo & Co. President and Chief Executive John Stumpf said Wednesday that the economy is likely to get worse before it gets better, but that he has seen some signs of improvement in the housing industry.

"We're starting to see a couple early signs that maybe we've reached the bottom in housing, or close to it," Stumpf said at a financial services conference sponsored by Goldman Sachs Group Inc. in New York.

For one, Stumpf said he has begun to see multiple bids on properties, a sign that demand is increasing.
Yes, demand for bank owned properties is increasing. In some parts of the country, home prices have come back to within hailing distance of reasonable valuations under normal economic conditions. It's too bad we don't have normal economic conditions anymore.
Housing market to recover in 2009 - New Mexico Business Weekly

The national residential real estate recovery has begun and by next June, the excess inventory of available homes should be absorbed, according to Alexis McGee, president of, a leading real estate and property information specialist.

“Recovery is underway. Affordable is back in the housing market,” says Sacramento-based McGee. “In 2009, housing will not only recover, but we’ll see buyers leap into this market in droves, depleting our housing oversupply, and actually putting higher price pressures on the market.”

Based on November’s foreclosure rates, McGee says the nation’s foreclosure hemorrhage has finally slowed and 2009 should see a significant decline in foreclosures as buyers return, pushing home prices up and fueling a real estate recovery.
Geez. I don't know how this lady can look at herself in the mirror.

Here's little cold water for all the folks above.
Foreclosure Storm Will Hit in 2009 as Loan Changes Fail - Bloomberg

U.S. foreclosure filings climbed 28 percent in November from a year earlier and a brewing “storm” of new defaults and job losses may force 1 million homeowners from their properties next year, RealtyTrac Inc. said.

A total of 259,085 properties got a default notice, were warned of a pending auction or were foreclosed on last month, the seller of default data said in a report today. That’s the fewest since June. Filings fell 7 percent from October as state laws and lender programs designed to delay the foreclosure process allowed delinquent borrowers to stay in their homes.

“We’re going to see a pretty significant storm next year,” Rick Sharga, executive vice president of marketing for Irvine, California-based RealtyTrac, said in an interview. “There are two or three clouds that suggest a pretty heavy downpour.”
Don't buy now, you won't be priced out of the market.

The year 2010 looks to be the year to start thinking about buying something.


Greyhair said...

Bottom calling, like calling tops, is a very inexact science at best. Fact is, no one knows when the price bottom will occur, and it may be different depending on the region.

MiamiCondoForum DotCom said...

Greyhair you're a complete turd. You can easily call a bottom in housing. Housing prices are based on 3x income or 6-10 times yearly rent(based on the area). You are such a complete douche bag that these number escape your simple pea sized mind.

gold and silver blog said...

I think this post was very well stated. I've been groaning every time I read another bottom prediction.

To the guy above, people will no longer care that houses are cheap or affordable on a relative basis. They will be afraid to buy based on the idea that housing prices will continue to decline indefinitely. No one wants to be upside down on their mortgage, even if the payment is cheap.

Dan said...

@ MiamiCondoForum

Markets that Regress to the mean typically overshoot the mean. While your target mean is correct, the market has a great probability that it will fall below your target during a mean regression, thus, calling a bottom is effete.

Anonymous said...

@ Miami Condo,

One reason (among many) prices may overshoot the target mean is if the property is a condo in Miami. Once owner-occupancy ratios fall too low, prospective owner-occupants can't get financing without massive down payments. And prospective investors will also find financing impossible if the project no longer meets FNMA/FHLMC standards (including owner-occupancy ratios, association reserves, etc.). Even if a would-be investor could get a loan on a single property, they can't go buy up a lot of investment properties (no matter how cheap) because Fannie & Freddie have implemented a "maximum four financed properties" rule (which includes one's residence). Outside of FNMA/FHLMC/GNMA money, there is no virtually no available credit. This is why condo lending has so many more rules. Because when the condo market starts to implode, it gets very bad very quickly. Miami condos will be hurting for many years, and there won't be enough rich Venezuelans to prop up the market, especially with oil @ $45.

MiamiCondoForum DotCom said...

Oh, you all misunderstand. I also agree there will be a huge overshoot. I am just saying that the bottom will be less than or equal to 3x income or a 6-10x yearly rent. Miami condos will certainly overshoot. My blog is devoted to trying to dissuade people from blowing their life savings on condos!!!

I was attacking greyhair because he sounds bullish. I hate housing bulls.

Housing is consumption. YOU DON'T MAKE MONEY ON HOUSING. does an excellent job of explaining that.

Greyhair said...

Really love commenting on a blog where I'm called a turd and pea sized brain. Good job. Your rhetoric tells me something about your ability to do analysis.

I didn't say anything bullish or bearish. I said (again, just for you) that calling tops and bottoms is impossible. If it was easy, even you would be doing it and getting rich off it. But alas, instead you're blowing time making stupid rude comments on blogs.

Good show!

Chuck Ponzi said...

I love it!

Is it PC to call someone a douchebag on a blog comment list?

What if they legitimately are a douchebag?

Anywho... there's no way a bottom is forming in 2009. That's just when the bottom's falling out. The option arm bubble hasn't burst yet, and that one's a doozy. About 2 or 3 times as large as the subprime one since it has serious knock-on effects.

It's not impossible to call a top or a bottom, regardless of what greyhair says (sorry, that's a godawful stupid comment, don't be a tool), it's just extremely unlikely that someone can do both. And, frankly, it's difficult to be accurate. I might trust someone like Robert Shiller more than I trust some douchebaggy realtor in Las Vegas. Shiller was bang-on for the tops of the last 2 major asset bubbles.

Though, I might be inclined to agree that it's easier to pick tops than bottoms since the exhaustion of the bubble becomes almost palatable, you could practically taste it in 2005 here in Socal, but bottoms tend to take a lot longer. Fear is a much more powerful motivator than greed.

Chuck Ponzi

Anthony J. Alfidi said...

Okay, but if housing should be priced at 3x income then it's even harder to call a bottom if real incomes are also falling. We'll probably see more of that in 2009-10.

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