Housing Bottom?
Today's Wall Street Journal discusses whether or not we have hit bottom in the housing market and how that affects the recession outlook. The article states "the U.S. central bank and much of Wall Street are now betting that the old rules don't apply, and that a recession next year, while possible, is unlikely." However, analysts at UBS Financial produced the chart here (click to enlarge) and ask if "This is what a housing bottom looks like?" 
They comment, "that if we've learned anything in our decades in this business it is this: it is almost NEVER different this time. . . these charts show that housing prices are still historically out-of-reach while inventories of unsold homes remain historically bloated. The bottom in housing will come when inventories normalize and/or prices become more affordable. The spurs will be: more time, higher incomes, lower rates, further declines in home prices -- or, most likely, some mix of all these. Remember that in the last housing bust in the US (late 1980's), housing peaked in June of 1986 and did not find a bottom until January 1991 . . . Also, the 5+ year boom in the housing market that ended just last summer was, by many measures, "more frothy" than what was experienced in the 1980's . . ."
They comment, "that if we've learned anything in our decades in this business it is this: it is almost NEVER different this time. . . these charts show that housing prices are still historically out-of-reach while inventories of unsold homes remain historically bloated. The bottom in housing will come when inventories normalize and/or prices become more affordable. The spurs will be: more time, higher incomes, lower rates, further declines in home prices -- or, most likely, some mix of all these. Remember that in the last housing bust in the US (late 1980's), housing peaked in June of 1986 and did not find a bottom until January 1991 . . . Also, the 5+ year boom in the housing market that ended just last summer was, by many measures, "more frothy" than what was experienced in the 1980's . . ."
posted by WRA Strategy Group at 12:51 PM
1 Comments:
We will be reading similiar articles for the next 2 years. I would guess that a continued gradual reduction in new home construction should continue for several years. Of course the housing industry is mostly controlled by the health of the general economy. % rates should remain low due to global competition, if taxes aren't raised by the Democratic Congress affordability will improve. Inventory reductions happen rather quickly when you have full employment.
All cycles are the same in that they always have tops and bottoms, it's the in-betweens that matter, and they are never the same. The two graphs displayed give a limited perspective. How about some demographics when comparing different cycles, and first time home buyers, vacation home buyers, retirement homes buyers. What are the inventories made up of and in what region? The rust-belt for instance never participated in the most recent up-cycle and yet probably weighs heavily on the down cycle statistics. This region will continue to decline most likely for years especially if the auto makers fail.
Certainly indepth studies of various building cycles, and the economic conditions prior to, during, and after said cycles will show the differences in each. JMHO
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