In 2008, Barron’s published a cover story by Jonathan Laing calling a housing bottom titled “Bottom’s Up: This Real-Estate Rout May Be Short-Lived.”
It was not just that it was wrong. Rather, it was how it got the bottom call wrong: The analytical process was flawed, as it ignored data, misunderstood and misstated history, with the author engaging in all manner of wishful thinking. It was not at all what one would call rigorous. This was surprising, as the usual skepticism Barron’s was renown for was nowhere to be seen.
The net result of that flawed process was a housing bottom call less than 18% from the top. Ultimately, the U.S. residential real estate market lost twice that amount, falling 35%, with specific bubble areas dropping 40, 50 even 60%. All told, a disastrously premature bottom call. As a comparison, my own housing analysis, made in 2005 and repeated in January 2008, was that US housing could fall 25-35%. It was based on simple historical prices, credit bubbles, and (eventually) included Reinhart and Rogoff data.
There were other bullish real estate articles in Barron’s during the slide, and eventually, they got it right: In March, 2012, the article Ready to Rebound (by the same author), struck a similarly bullish tone. Kudos to Jonathan Laing and Barron’s, as they were correct last March and again repeating the call in September 2012 (Happy at Last).
Meantime, I remained skeptical of the recovery as little more than Fed driven and manipulated bank bailouts. Regardless, home prices rose appreciably, gaining ~8% since then. I publicly admitted my error in my annual mea culpas (here and here).
Now here’s where things get interesting: In this weekend’s Barron’s, there was a bit of chest pounding about their Housing call: As We Predicted, Home Prices Are Ascending:
“Barron’s didn’t have much company a year ago when we predicted in a cover story (Ready to Rebound, March 19, 2012) that the six-year collapse in home prices was just about over. Our call that the turn in the market would come in the spring of 2013, “if not before,” drew derision from many quarters, including influential market pundit Barry Ritholtz.
Then we doubled down on our thesis in another cover story (“Happy at Last,” Sept. 10) that delineated early signs of rebounding home prices, pointing to slowly rising month-over-month increases, if not the sturdier indicators of substantial year-over-year price gains” (emphasis added)
To which I call foul.
Noticeably omitted from this article was any mention of that 2008 bottom call. Prices remain far far below their original call.
Doubling down? This was more of a tripling down.
Despite years of ZIRP, bailouts, QE, foreclosure abatements, bank settlements, HAMP, subsidies, extended delinquencies, non foreclosure-defaults, and dumping bad mortgages on GSEs, etc.* Home prices are rising, inventory is tight, unemployment is falling, rates are near record lows. Given all of the above, it would be a huge cause for concern if sales and prices were not going up.
Hence, we are reminded that if one make the same call repeatedly over the course of 5 years — one will, like the proverbial broken watch, eventually get it right. The problem with broken clock calls is they are useless to investors.
More on this in the future . . .
How Far Might Housing Prices Fall? (January 3rd, 2008)
Why Barron’s Housing Cover Is So Terribly Wrong (July 12th, 2008)
Cheapest Homes in 40 Years? Not Even Close (April 25th, 2011)
Barron’s Cover Calls Housing Bottom (Yet Again) (September 10th, 2012)
* I am also compelled to point out the ill advised reliance of National Association of Realtors Housing Affordability Index (See NAR Housing Affordability Index is Worthless). It is a work of such breathtaking cheerleading and is so deeply flawed that it found homes were “unaffordable” but one month during the entire 2001-06 boom which preceded the collapse.