I’m frequently asked, “When will we know when we’ve hit the bottom of the housing market?” Though I don’t know the answer to this question, I always welcome the insight of others. So I was pleased when I read in this morning’s RGJ an article reporting on a recent visit by Houston Association of Realtors Chairman and Stewart Title Chief Economist, Ted C. Jones. According to Mr. Jones, the answer to identifying the bottom is, “When we get multiple months of the same number of sales for six months." I’m interpreting that statement to mean six consecutive months where the number of sales did NOT decline. (See latest sales numbers here.)
Mr. Jones was addressing an audience of 100 Reno business leaders regarding the housing bubble. The RGJ quoted Mr. Jones as saying "You had a bubble, and it’s bursting. It’s time to get realistic." His advice to sellers: Trim the asking price on Homes. See the complete RGJ article here.
How will you know when we’ve hit bottom? Feel free to add your thoughts below in the comments.
smarten
To coin a question from a friend of mine, “what is, is?”
So what is “bottom?” Is it the number of monthly conventional sales? Is it the number of monthly trustee’s sales? Is it the monthly median price? Is it DOMs? Ask the question differently, and I think you’ll get different answers.
To me the seminal indicator is the number of monthly sales. When this number increases, the number of foreclosures will decrease as will the median price.
In Reno we’ve just about hit as low a number as mathematically possible [insofar as monthly sales activity is concerned]. I guess the number can drop a bit further to let’s say 100. But I can’t see it dropping any further. And when the number can’t go lower, it’s the bottom.
Does that mean prices can only increase from here? Of course not. But the odds of the percentage of monthly sales increasing from the current 3% is far greater than decreasing to let’s say 2% of monthly sales.
Coincidentally, assuming that the number of monthly sales bottoms out next month; and assuming that it drops no lower for another 6 months; just like Mr. Murray and I believe, we’re there.
BanteringBear
Smarten posted:
“So what is “bottom?””
I think it’s fair to say that, for the vast majority of people, the term “bottom” is used in reference to prices; nothing else. That said, I don’t anticipate a “bottom” for another few years.
bondstevenbond
Citigroup announced today they will flood the bond market with $45 Billion in mortgage securities, Countrywide barely exists anymore, and Bank of America’s earnings just fell 90%. Wall street mortgage traders are repeating the same phrase everyday this week, “Today is the worst liquidity I’ve ever seen.” You know the fear is palpitable and real when Central Banker of World’s Reserve Currency, Ben Bernanke, is asking the Banks to forgive loans. Unbelievable! I heard today that some mortgage securities are trading below their theoretical intrinsic value if ALL of the underlying mortgage loans in the pool defaulted TOMORROW. For anyone with great credit and trying get a jumbo loan, or anyone trying to sell an expensive house, think of this analogy: You own the finest restaurant in town. Everyone knows your food is best. But none of that matters anymore. The fact is that EVERYBODY who loves your restaurant is ALREADY stuffed to the gills because they just ate biggest meal of their lives. What price is your food worth at this exact moment when no buyers exist? Sadly, we are a long way from the bottom. IMHO, the bottom is when otherwise rational real estate investors become so fearful that popular belief is “real estate NEVER goes up”, sound familiar? When 42% of Reno MLS listings are sitting completely vacant we are a long long way from the bottom. Because, as my grandfather said after farmland dropped 75% in 1979. “Nothing is worth more than it can produce”. Or, maybe we’ll get “lucky” and the bottom will happen when Uncle Sam Nationalizes Fannie and Freddie.
DERRICK
If I’m not mistaken, I called a bottom in 6-12 months about 6 months ago! that was LAST YEAR.. However I am leaning more towards the ladder.
I wouldn’t be surprised to see sales level out in the next few months and start picking back up towards the end of the year// As to when prices will actually start increasing again? thats probably at least another 12-18 months out.
Prices will come down a little more from todays prices, but buying right now with the intentions on living in the home for at least 5-7 years would not be financial train wreck. Once I notice monthly sales leveling out or increasing slightly, with inventory trending down is when I might consider buying a condo for investment/living purposes.
MikeZ
Prices will come down a little more from today’s prices
What makes you say that? Gut feeling? Tarot cards? Ouija board?
Certainly not the price data. Reno’s only about halfway back to the inflation-adjusted pre-bubble mean.
That implies the next 2-3 years will bring further price degeneration, about the same magnitude (-20%, infl. adj.) as what’s we’ve already experienced.
And if we’re still in a recession at that time, expect significant overshoot, below the long-term mean.
inclinejj
2010 or 2011
Keep an eye on Notice of Defaults..when they start dropping and leveling off then you know the bad loans are working there way thru the system.
40% of the sub-prime and Alt-A loans written are expected to go into Foreclosure in the next couple years..
That isn’t even counting prime A loans taken out with Stated Income
Sully
Mike, if we are still in a recession 2 years from now it will be called a depression!
DERRICK
mikez there’s a reason why I’m 27 and almost retired, and its certainly not from making bad investment decisions. You can talk all your garbage about me, thats ok I find it quite amusing.
BTW you won’t see another 20% haircut in prices, if you think that, you are living in fantasy land
SmartMoney
Based on such historical measures such as price to income/rent versus own ratios and historical price appreciation, we have at least another 20% to the downside to get back to normal. Unfortunately, when bubbles pop, prices never go back to normal, always below. So we have a ways to go, no doubt.
MikeZ
mikez there’s a reason why I’m 27 and almost retired
Is there a reason why you won’t answer the question?
One more time: “What makes you say that prices will only come down a little more from today’s prices?”
Share your insight, Oracle of Sparks!
smarten
Derrick states, “you won’t see another 20% haircut in prices, if you think that, you are living in fantasy land.”
No, he wasn’t talking about Reno SFRs but rather, the stock market – you know, that place where there’s “no gambling.”
But I’m sure our 27 year old oracle [“if I’m not mistaken, I called a bottom in 6-12 months about 6 months ago! that was LAST YEAR…” (sorry, you’re mistaken Derrick)] from Spanish Springs saw that one coming too!
DERRICK
It’s ok to be have-nots guys.. I understand..