Housing starts (Click to expand via Calculated Risk)
Bill McBride, who is a highly respected blogger on finance and economics, lobbed a bombshell the other day that has been predictably controversial.
On CalculatedRisk.com — which I check two or three times a day for his latest news, information and insights on real estate — the full-time blogger declared the following:
The Housing Bottom Is Here
He contended that sales volume “probably” bottomed in mid 2010 and has flat-lined since then. As for prices, he expressed his belief that prices will hit their nadir “around March” and then starting rising.
In a subsequent post, the blogger elaborated on his views about nominal (that is, not adjusted for inflation) prices:
If the current price pattern follows the previous bust, real prices will gradually decline for a few years – however most homeowners care about nominal prices, and there is a good chance nominal Not Seasonally Adjusted (NSA) national prices will bottom in March – and then start moving mostly sideways.
Since McBride tends to be as cautious as I am about making such statements, I was more than a little surprised by the strength of his assertions. But I wasn’t surprised at how they elicited comment.
Appraiser Jonathan Miller argued that McBride erred by underestimating the effects of the nation’s colossal shadow inventory. Said Miller:
. . . [T]he call of a bottom is missing a huge element from the equation – supply. The forecast of a housing bottom could certainly be right in the short term, and housing prices could bottom in March temporarily, but there is a lot of excess supply to be dealt with and I suspect that prices will begin to slide. . .
Also taking issue with McBride was Noah Rosenblatt on his UrbanDigs.com site, where he maintained that low consumer confidence will stymie housing’s recovery. He also cited lenders’ restrictive policies as well as uncertainties surrounding the state of the global economy.
(flickr photo by Marion Doss)
“The bottom may be in but a true reversal in real prices I think is still a few years away,” Rosenblatt said.
I’m surely not one to know exactly what is correct and so will try to stand the middle ground. What I do know is that the cost of renting keeps climbing, demographics point to increasing household formation and pent-up demand continues to build at a time when mortgage rates could not be any more attractive.
In addition, we have reached a level of housing affordability, even if prices still fall and consumers still cling to a desire to capture the bottom, that demand will lead us into a healthier market than the U.S. has seen in at least five years.
It seems to me that there’s enough optimism and pessimism to go around.
Robert Shiller has said there is a “serious and real possibility that housing prices” could fall further, Karl Case has made a hedged forecast for a turnaround in 2012 and economist Barry Ritholtz scoffs that prices have a long way to go before rebounding. (Scroll to “The Prognosticators” at the end of my Weekly Roundup on Feb. 3 for links to Case, Shiller and others.)
Perhaps the bottom line –sorry, I couldn’t help myself — is that were not exactly marching to recovery. Instead, we’re muddling toward it. We’ve made halting progress, as Bill McBride points out, and I guess the market will sometimes slip back while advancing enough to gain more ground at times than is lost.
Calling the bottom is a dangerous thing — and just about impossible to get right, whether with housing, stocks, interest rates or gold — but there finally are hopeful signs that we are at last and at least getting close.
Tomorrow: Caveat emptor
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Malcolm Carter
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