Yeah! Housing Will Recover in Q1!

Or so says the NAR:

"The worst of the U.S. housing slump is over, according to the National
Association of Realtors.

Sales of previously owned U.S. homes will grow at an annual rate of 6.29
million in the first quarter, snapping five consecutive quarterly declines, the
industry’s largest trade group said today. New-home sales, about 15 percent of
the market, won’t recover until 2007’s fourth quarter when transactions will
grow to an annualized rate of 967,000 after bottoming at 944,000 in the third
quarter, Chicago-based NAR said.

No word on whether the $40 million advertising campaign (It’s a great time to buy or sell a home!) is having any impact on this so-called recovery.

David Lereah, NAR’s chief economist “Most of the correction in home
prices is behind us, but general gains in value next year will be
modest by historical standards.” Lereah did not offer any evidence for his statement.

Call it wishful thinking: In 2006, the inventory in new and existing residential homes for sale was at record high levels (inventory still remains dangerously high). And, Home prices have dropped far more than the reported by government or NAR statistics. That combination — excess inventory and falling prices — does not bespeak a bottom in the housing sector.

The NAR has not shown itself to be a particularly astute forecaster: They projected 2006 housing resales would be 6.84 million; In actuality, sales fell to 6.47 million units sold.

Calling the bottom in Real Estate has been a losing gambit this year. In addition to the NAR’s chief economist, several other cheerleaders have erroneously called for the same, including former Fed Chief Alan Greenspan. They have so far been proven wrong.

Historically, Housing may still have further to go. According to Hugh Moore of Guerite Advisors:

"In the previous seven cycles since 1959, housing starts
(seasonally adjusted) have fallen, on average, 50.7% from peak-to-trough. Each
time housing starts have fallen more than 25% from their most recent peak, a
recession has followed (except during the ‘credit crunch’ of 1966-67 that ended
in an economic contraction, but not an ‘official’ recession)… Look at the chart below. Housing starts have dropped 34% so far since their peak
in January of 2006. Just to get to the average drop we have another 20% or so
drop in starts to go.



Real housing bottoms require more than wishful thinking; They require solid evidence, and more than mere price reductions. A significant decrease in inventory, plus motivated sellers, would go a long way to seeing a bottom form. So far, we have yet to see any evidence of that.


Existing-Home Sales to Trend Upward in 2007    
December 11, 2006

Existing-Home Sales In 2007 Expected To
Recover From Cyclical Low

December 11, 2006

When Will the Housing Market Bottom?
John Mauldin
December 8, 2006

Housing Will Recover in First Quarter, Realtors Say
Kathleen M. Howley
Bloomberg, December. 11 2006

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What's been said:

Discussions found on the web:
  1. Mike_in_FL commented on Dec 11

    I’ve posted a lot of thoughts at my blog on this topic — whether we’re hitting “THE BOTTOM” for housing. I’d summarize those thoughts as “not yet … and probably not for a good, long while.”

    The inventory is the real problem. We simply built so many more homes than needed over the past few years. Demand, meanwhile, was dramatically inflated by artificial (read: investor/speculator) buying. That has dropped off dramatically, leaving us with a supply glut of epic proportions.

    To cite just one statistic, the supply of existing homes for sale shot up 108% from its early 2001, pre-bubble low through this July. Since then, we’ve dropped … drum roll please … 0.6%. I wouldn’t claim the inventory problem has been solved, would you?

    Another important point: Historically, for-sale inventory usually flatlines or falls this time of year as unsold homes get pulled from the market around the holidays. Once 2007 rolls around, I’d expect relisting activity to surge (from people who couldn’t sell this year), driving the absolute level of inventory to new highs, beginning in February or March. Unless sales/mortgage purchase apps pick up a lot more than they have recently, you’re going to see inventory-to-sales ratios blow out yet again … and a lot of that bottom talk dry up.

    Full post here if you’re interested …

  2. Nikki commented on Dec 11

    Why do Bloomberg and other outlets give such ink to this drivel when it has, as Barry and others have aptly demonstrated, no basis in fact or history? A look at past cycles, as well as the astonishingly high levels of inventories going into the dead of winter, indicates that the worst is yet to come. Wouldn’t an astute and thorough journalist at least challenge these assertions, or do they just publish what they’re told? How about quoting somebody who doesn’t have money in the game? To me, this is just lazy.

    Here in Baltimore, prices doubled in 5 years, and last month was our first month of “officially” flat appreciation YoY. Meanwhile, sales have plunged double digits for 13 straight months and inventories are over 50% higher than in Nov. 2005. I fail to see how this could be a bottom with affordability so low and zero “official” price correction.

  3. Teddy commented on Dec 11

    Everybody is yelling fire in the crowded housing thee-ate-tor, but maybe we should just relax and get our wits about us. Thanks? to China and the Japan and Swiss carry trades, maybe, just maybe, most of the crowd will escape thru the back door of long term rates with renewed negative amortization and left “twisting in the wind” of long term debt until Bernanke gets to work again if cap ex spending occurs in China instead of the US.

  4. ECONOMISTA NON GRATA commented on Dec 11


    I’m glad that you brought up the carry because that’s another bubble that’s just waiting to blow up in our faces. Dang..! Dont these people ever learn….? I don’t know if you’ve noticed, but we’re running out of balloons…. Just don’t tell the kids…


  5. Mike M commented on Dec 11

    A lot of mainstream economists contend that housing has bottomed. I don’t get it. At least in the larger metro areas, housing has a long way down. Why? Rents are still about 1/2 the monthly costs of buying.

  6. Teddy commented on Dec 11

    Mike M, I don’t get it either. I’m just grasping at straws … I mean balloons to explain this floating pile of crapola. And btw, crapola should not float unless the patient has toxic gas and this occurs only with severe digestional problemos, which could be dangerous.

  7. Cherry commented on Dec 11

    They are trying to sucker in the last “dummy”. The Sub-prime bust is just the beginning of the financial side of it which takes longer than the production(building) side of it which is about halfway down.

  8. KP commented on Dec 11

    Looking at that last chart it’s interesting to see just how relatively quickly we’ve corrected that 30 some odd percent on the downside. Lends credence to the possibility of a bottom being not THAT far off( a year or two). I “think” that the bottom will be longer lived than usual as well. Given that when it arrives or least around the same time that I think it will be arriving….we just might be battling some economic issues tied to our clandestine inflationary problems. Huge IMHO.

  9. Barry Ritholtz commented on Dec 11

    Mrs. Big Picture wants to sell the house and rent

  10. M.Z. Forrest commented on Dec 11

    I think it is hard to make heads or tails yet. Some of the bubblicious markets have seen 10-20% knock downs. A lot of the decline has been in the Midwest which directly relates to the auto industry specifically and industry generally. In other words, you have two trendlines not necessarily related giving a distorted big picture.

    I think some expectations have changed. Over the past few months expectations have changed from interest rates persisting at a 7% level to interest rates falling below 5% again. Each 50 basis point decline translates into $125/month of affordibility.($1750 for $300,000 at 7% versus $1625/m @ 6.5%) All of the sudden the market for a house includes people having a household income of ~$4500 less. (No, I’m not including taxes and insurance.)

  11. Sherman McCoy commented on Dec 11

    This is abso-f–king-loutely ridiculous! The whole NAR predicition is based on NO DATA! It’s “voodoo-voodoo housing market go up”! There’s nothing behind the curtain except David Lereah and an organization trying to get commissions. Sham, sham, bogus sham… I sell porn with 10 times more honesty than these guys sell houses!

  12. Sherman McCoy commented on Dec 11

    By the way, ‘ya want to know where housing is headed– talk to an agent! The average “pound the pavement” REALTOR, who breathes the market day in and day out, will give you a much better indication of where things are headed. Talk to a handful wherever you live and you’ll have a market indicator leaps and bounds ahead of anything that comes out of NAR.

  13. craig kincaid commented on Dec 11

    trying to call a bottom or top in real estate is pure folly. real estate is not stocks and bonds. unless you’re comparing exact pieces of property (which is impossible) you can’t say if real estate is falling or rising. using statistics like average or mean is useless also. yes, there might be more inventory right now which only means that buyers have stopped buying while builders were building. if the owners (sellers) don’t have to sell (and many do not) then the buyers have to pay the price. this last real estate cycle has has been dominated by the large homebuilders not the small ones. the big guys don’t have to drop prices to move homes and they have the ability to shut off new construction quickly which is why permits and starts are off so drastically but that still doesn’t equate to a meltdown in real estate prices. it’s just impossible to call an overall top or bottom in pricing, but you can say that available housing is not being bid on like it was . . . end of discussion.

  14. Carl commented on Dec 11

    If Lereah was a trader, my guess is that he would have repeatedly doubled up by buying more on every new bottom and would now be facing a margin call.

    If this was a war, and the NAR was a combatant, Lereah would be on trial as a war criminal.

    Psst…Don’t drink the milk, its spoiled.


  15. Teddy commented on Dec 11

    Craig, you’re absolutely right; the real estate market is now big business, but is now more than ever controlled by Wall Street, and it now trades more like a government bond than a stock. It’s called LEVERAGE and Fannie Mae. Do you think if we have a significant correction in the stock market w/o a significant dollar decline, the bond market will rally quickly and housing will stabilize and then go up? I say yes.

  16. The Learning Curve commented on Dec 11

    Are We Not Men?

    When will the housing market bottom? Barry Ritholz with some commentary.

  17. TAM Money and Finance commented on Dec 11

    Housing Market Bottom: Not So Fast Says Analyst

    Barry Ritholtz, Chief Market Strategist for Ritholtz Research, isnt convinced the housing market is anywhere near a bottom. He calls the National Association of Realtors assessment wishful thinking. Ritholtzs biggest …

  18. muckdog commented on Dec 11

    The country is at full employment and wages are rising. The Fed seems to have created a soft landing. So folks will most likely be able to make their mortgage payments, get the Playstation 3 AND the Nintendo Wii over the next few months, and live their lives.

    The housing market hasn’t bottomed. Most folks who have the funky loans will be able to refinance into fixed loans at attractive rates. The market may stablize for a while. All this recent decline has done is to remove the speculation and froth.

    Hopefully, we’ll stablize and prices won’t move for years. If there is a next leg down in real estate, it probably won’t happen until we have a real recession and unemployment goes up.

  19. KevinH commented on Dec 11

    Retail Sales?

    I was thinking about how foreign shoppers would add to retail sales this season and then I thought that I haven’t seen any sales #’s for this season.

    Don’t we normally see them by now? It’s been very quiet (I think sales have also).

  20. Cherry commented on Dec 11

    Wages are rising? What world you living in man?

    By the lie, you become the lie.

  21. ari5000 commented on Dec 11

    OT: Barry — I am requesting you research and write a blog explaining to people like me exactly what is the “carry trade” and why it might be fueling the rally — and might end it.

    I’ve heard this term thrown around a few times lately (not as much as ‘liqudity bubble’). I think other readers would like to understand more too. Or maybe some of the fine readers here could just respond if that’s okay.

  22. my1 commented on Dec 11

    “If there is a next leg down in real estate, it probably won’t happen until we have a real recession and unemployment goes up.”

    Hate to break it to you kid but we’re already in a Recession. (Auto, manufacturing, now retail, construction, housing).

    Seriously worth watching –

  23. my1 commented on Dec 11

    The way I understand it, its fairly simple. The cost of money is priced in short-term interest rates. Interest for money varies from country to country, so if the interest rate in the US is 5.25% and the price of money in Japan is 1% (as Japan did have a Zero-interest-rate-policy for years) you could borrow money in Japan, use it in the US and you’re banking on an automatic 4.25% gain.

    The fact that the EU, Swiss and Japanese Central Banks are all tightening, it’s making that process plenty harder to do.

    Those who made a business of such carry-trading, as it became called, are now in trouble.

  24. winjr commented on Dec 11

    Muckdog wrote:

    “Most folks who have the funky loans will be able to refinance into fixed loans at attractive rates.”

    No, they won’t. Most of the “funky loans” are, in fact, subprime loans. 13% of all mortgages outstanding, and almost 20% of the loans issued in 2005 and 2006, are subprime loans. The vast majority of subprime loans are 2/28’s, so the 2005 vintage will be resetting soon, and with little or no equity in their homes, and most of them opting for minimum payments, their credit still stinks. Unfortunately for them, they’re stuck with the LIBOR structure and above-market rates. Most of them are cooked. The foreclosure snowball is just starting to roll.

    The graph is interesting. A recession was avoided only once — 1967. The reason? Cranking up the Vietnam War Machine. Too bad we’ve already spent $500 billion on Iraq.

  25. Mark commented on Dec 11

    “The way I understand it, its fairly simple. The cost of money is priced in short-term interest rates. Interest for money varies from country to country, so if the interest rate in the US is 5.25% and the price of money in Japan is 1% (as Japan did have a Zero-interest-rate-policy for years) you could borrow money in Japan, use it in the US and you’re banking on an automatic 4.25% gain.”

    easier said than done, don’t you think interest rate differentials are priced into FX forwards?

  26. my1 commented on Dec 12

    Well I guess that’s the risk. Never traded in FX markets.

    Also, may apply in international commerce:
    A US-owned mine in Argentina may want to borrow money for operations there, and may then lend it out here in the States.

  27. tj & the bear commented on Dec 12

    Mrs. Big Picture wants to sell the house and rent.

    Very wise lady.

  28. tj & the bear commented on Dec 12

    Mrs. Big Picture wants to sell the house and rent.

    Very wise lady.

  29. tj & the bear commented on Dec 12

    Mrs. Big Picture wants to sell the house and rent.

    Very wise lady.

  30. Lindsey commented on Dec 12

    Uhh, Sherman (5:52 p.m.)

    What makes you think the agents are going to tell you the truth?

  31. Lindsey commented on Dec 12

    Uhh, Sherman (5:52 p.m.)

    What makes you think the agents are going to tell you the truth?

  32. TempusFugit commented on Dec 12

    I have a different take-away from this chart: that the macro-trend has been FLAT over the last 50 years. Indeed the top was in the early 1970s. In the meantime the population has grown by a third and the number of households has grown even more as residents-per-household has dropped. I bet if you ran a chart of housing starts per household that the long-term trend would be flatter yet or even down.

  33. David Berry commented on Dec 12

    If anyone really wants to learn about investing, one of the top 3 sources of intelligence comes from the editors of this daily newsletter (it’s free.) . I have no relation to this company, I just gave them my e-mail address and they send me stuff. I have been a real estate and stock investor (heavy) for over 40 years.

  34. Lori commented on Dec 12

    Much has been said about private owners who haven’t adjusted to the new price reality, but I dont think builders have either.In my home town of Phoenix, the newspaper ran an ad by DR Horton that said “clip this coupon for a 2% price reduction on any spec home.” I could just see me walking into a sales office holding out my coupon for “real bargin” like that.

  35. Sherman McCoy commented on Dec 12

    Lindsey: On an individual level, meet the agent for a drink and insist on their honest assessment. You can also see if the assessment changes with a couple more drinks. ;-)

    Ideally, we’d have an organized effort to poll agent sentiment, with results reported in aggregate for a metro area. Like 100 REALTORs for NYC, for instance, polled once a month. With results in aggregate, the agents could give their honest opinion of the market without fear of it coming back to bite their business.

  36. Dave commented on Apr 13

    Pessimists, most of you. I agree for the most part with the gentleman who said the big national builders are primarily responsible for the inventory surplus. They have since shut off the tap and the market supply/demand dynamic will level in time. The bottom line with existing housing prices is that they can’t drop too much. They will see no gains until the supply/demand is equalized or goes negative but they can’t drop too much. It costs a contain number of dollars to build a new home in terms of 2×4’s copper pipes, hardwood floors ect. These costs are not going down (inflation), therefore how could an existing home drop 25 to 50% as some posters in this forum have eluded to when there will always be population growth and demand for new and existing housing and it costs a X number of dollars to build. The only way we would see a 25 to 50% drop in house values is if we saw a 25 to 50% economic depression in which case none of us could afford our high-speed internet bill to be able to type in these forums at the we hours of the morning. ~whew…. With the big builder spigot turned off the inventory will draw closer to demand and the problem is solved. I think we just need to be careful that we don’t end up in the same boat 5 to 7 years from now. 1) Lending huge amounts of money to people who can’t afford it 2) hope the building industry “self regulates” its production (I think they will as they will be more cautious about home many homes they have in surplus at any given time. For you eternal pessimists, go have more kids, that way 25 years from now there will be all kinds of home buyers. I may go talk to the wife tonight about personaly contributing to housing futures :)


  37. Barry Ritholtz commented on Apr 14

    The national builders turned off the inventory spigot a year ago. Then you have the 1000s of regional builders, and the 10s of 1000s of local builders. Then there are the spec buyers, builders, traders, flippers.

    The pricing advantage housing has (versus let’s say the dot com stocks) has always been its intrinsic value. There is a cash flow you can generate via renting that created a pricing floor.

    (See this post for more details: Buy vs Rent)

    Well, now its considerably cheaper to rent versus own. That lowers the price floor. I dont see any reason why housing cannot see prices fall 10%, 20$ even 30% off of the 2005/06 peak . . .

  38. Tyler Hill commented on Feb 22

    I am a real estate agent in Boise,Id. I keep close track of inventories which are on the rise. The number of overall homes on the market has been decreasing, but not as fast as home sales are declining. Resulting in more months of inventory. I believe a turn around in consumer confidence could correct our market. We would have lower inventories if our sales were similar to November levels, which would return us to a “normal market”.

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