Signs of a Housing Bottom?


This is the very first evidence I have seen that we might be near the bottom in housing.

No, not the chart above — this:

It’s Going to Get Worse

Economist David Lereah was once the housing market’s biggest cheerleader. Now he says the bust isn’t near over, and home prices still have a long way to fall.   

"We’re not at the bottom," he says. "[People] want it to be near the bottom, but we’re not there yet. The leading indicators are still very bad. Pending home sales are still in bad shape. Mortgage applications are low … There’s still supply out there in abundance … This thing is going to get worse before it gets better."

Lereah says that the industry may begin to see a slight uptick in sales later this summer, which could signal the start of the recovery. Home prices, however, will continue to fall. According to the latest numbers from the Case-Shiller index, the average U.S. home has lost around 15 percent of its value since the market’s peak. "We’re probably going to end up with a 20 percent [decline], but if I’m wrong it will be even more than that," he says.

I’d call that capitulation — tho its only one person.

Oh wait — there’s this: "So even if this slump remains far from over, David Lereah still thinks it may be a smart time to buy."   That suggest no bottom in sight.

Oh Yeah, that’s the good stuff . . .


It’s Going to Get Worse
Daniel McGinn
Newsweek,  May 6, 2008 | Updated: 11:15  a.m. ET May 6, 2008

Gloom in the Housing Market Persists
Asha Bangalore
Northern Trust Global Economic Research, May 7, 2008


U.S. Home Slump Puts Owners Under
Water, Zillow Says

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What's been said:

Discussions found on the web:
  1. Marcus Aurelius commented on May 9

    He might have capitulated, but he still has hope that it will start to turn around this summer – there is no reason, other than wishful thinking, to make that assumption.

    I feel sorry for him.

  2. Bob A commented on May 9

    It always turns around sooner or later. Unless of course it’s different this time.

  3. shoeless commented on May 9

    Even a broken clock is correct twice a day and the blind squirrel still finds a nut every now and again. But in the case of David Lerah, he’s just a tool.

  4. ottnott commented on May 9

    “Lereah still thinks it may be a smart time to buy”

    Heh. Lately, every time I hear something like that from an NAR member or lackey, I get a mental image of a hobo singing “Big Rock Candy Mountain”.

    One evening as the sun went down and the jungle fire was burning
    Down the track came a hobo hiking and he said boys I’m not turning
    I’m headin for a land that’s far away beside the crystal fountains
    So come with me we’ll go and see the Big Rock Candy Mountains

    In the Big Rock Candy Mountains there’s a land that’s fair and bright
    Where the handouts grow on bushes and you sleep out every night
    Where the boxcars are all empty and the sun shines every day
    On the birds and the bees and the cigarette trees
    Where the lemonade springs where the bluebird sings
    In the Big Rock Candy Mountains

    In the Big Rock Candy Mountains all the cops have wooden legs
    And the bulldogs all have rubber teeth and the hens lay soft boiled eggs
    The farmer’s trees are full of fruit and the barns are full of hay
    Oh, I’m bound to go where there ain’t no snow
    Where the rain don’t fall and the wind don’t blow
    In the Big Rock Candy Mountains

    In the Big Rock Candy Mountains you never change your socks
    And the little streams of alcohol come a-trickling down the rocks
    The brakemen have to tip their hats and the railroad bulls are blind
    There’s a lake of stew and of whiskey too
    You can paddle all around ’em in a big canoe
    In the Big Rock Candy Mountains

    In the Big Rock Candy Mountains the jails are made of tin
    And you can walk right out again as soon as you are in
    There ain’t no short handled shovels, no axes saws or picks
    I’m a goin to stay where you sleep all day
    Where they hung the jerk that invented work
    In the Big Rock Candy Mountains

    Icing on the cake: while performing a google-brand internet search for the lyrics, I found Wikipedia’s explanation that the familiar versions of the lyrics are cleaned up. The song may be based on the tales hobos supposedly told to lure other, usually younger, people into the lifestyle. Harry McClintock’s version of the song ended with a verse I know I’ve never heard, and it is appropriate for Lereah (but not your children):

    The punk rolled up his big blue eyes
    And said to the jocker, “Sandy,
    I’ve hiked and hiked and wandered too,
    But I ain’t seen any candy.
    I’ve hiked and hiked till my feet are sore
    And I’ll be damned if I hike any more
    To be buggered sore like a hobo’s whore
    In the Big Rock Candy Mountains.

  5. JS commented on May 9

    Please please buy!

  6. DownSouth commented on May 9

    Thank goodness housing prices are falling.

    The exorbitant prices were like a loaded gun aimed at young people and other first-time home buyers.

    As housing prices soared into the blue and cloudless empyrean, many deserving and hard-working young families were priced out of the market. Now, as prices fall, maybe they can once again afford a home.

    I hope home prices fall another 50%. Just imagine the opportunites that will create for young people to live in a decent home of their own, something that was completely out of their reach before.

  7. shoeless commented on May 9

    Can I ask a related question?

    Does anyone know how the majority of mortgage resets are calculated? Are they primarily based off LIBOR (in which case, resets are having little impact) or do they reset to a 30 year conventional rate (in which case, the market is screwed)?


  8. Ross commented on May 9

    Actually it is a good time to build a home. Discounts on some materials and appliances are in the 15 to 20% range and labour is mighty friendly.

    If you build at replacement cost, you know the value and idiot bankers are still lending at a fixed rate for 30 years…You get to pay it back with cheaper $$$.

    Housing finance is going to change drastically in the next few years. Rates will increase and no one will lend for more than 5 year periods even though you will amortize over 30. Five year ARM’s will become the norm.

    So, as perverse as it sounds, building or buying with the current terms will be looked at fondly in hindsight.

  9. Mr. Obvious commented on May 9

    Lereah is just talking his book, its just a different book than it was when he was the NAR mouthpiece.

    Guy has no credibility…

  10. Mac Dada commented on May 9

    Thanks to DC, a thousand points of bailout.
    Thousand golden parachutes for “deserving”.
    Yes, a chance for 1T’rs to live in a “decent home”, within a crumbling subdivision, in a bankrupt municipality, a serviceless state,
    huddled inside, shades pulled, guns drawn,
    while crack-heads loot the empty neighbors.

  11. moon commented on May 9

    He no longer is the N.A.R. economist therefore has anyone thought he is now telling his honest opinion and wishes to restore his good name by being right. Under his previous moniker he needed to greenspan the issue and say all is well. Cheerleader during what he knew sucked just as Greenie knows things are Fracked.I am in this industry and it is getting worse especially on the commercial side. Not seen anything yet…..

  12. lunatic fringe commented on May 9

    Is it actual capitulation when the paid huckster is no longer getting paid?

  13. Jmay commented on May 9

    Lereah: “Now isn’t not a bad time to sell or buy a home!”

  14. jswede commented on May 9

    it comes down to this:

    the 20% downpayment is back, and Americans cannot afford it. not even close.

    we have a LONG way to go.

    we’ll bottom when Americans’ savings meet more affordable 20% downpayments. I’d say at least 3yrs and down another 30% from here. easily longer as most Americans are in deep debt and their homes are sinking them deeper by the day.

    then prices will stabilize and begin to appreciate at about the rate of inflation. like they did the previous 100 years leading up to this century.

  15. wally commented on May 9

    Except that housing isn’t going to a ‘bottom’; it is a bubble going back to normal, and it may overshoot on the way. People who think it will ‘bottom’ believe it will rise again. It won’t.

  16. E commented on May 9

    David Lereah, the pride of the University of Virginia.

  17. Chester White commented on May 9

    When NEWSWEEK and TIME and BUSINESS WEEK and FORTUNE simultaneously run magazine covers saying that all is lost in housing, THAT is the day to buy.

    Never fails.

  18. Paul Jones commented on May 9

    Reverse psychology: the only kind that really works…

  19. BG commented on May 9

    I just read this headline:

    Citigroup to shed nearly $500B in assets.

    Will someone please slap me into next week?? How in the Hell can any one person fuck-up so badly? That’s half a TRILLION DOLLARS – one fucking company!!!

    Holy shit!

  20. BelowTheCrowd commented on May 9

    Well, to take the devil’s advocate position:

    Depending on the circumstances it may very well be a decent time to buy.

    IF you’re in a market that has not experienced the kind of price appreciation we’ve seen on the coasts…

    IF you have the ability to make the payments…

    IF you’re going to buy at a price that makes your monthly after-tax outlay similar to that which you would pay in rent (still possible in many places)…

    And finally, IF your holding timeframe is five years or more, and you don’t particularly care about fluctuations along the way…

    Then buying might certainly make sense.

    Ultimately, we’re going to go back to buying houses because they make sense as places to live, not because they may appreciate. A house purchase could start to make sense financially before we get to an absolute bottom. It may also never make sense, even after we get to the bottom.


  21. tree commented on May 9

    this is an easy one. Last time homes were affordable in bubble markets was around 2000. Just zillow the home you want to buy and see what it or the comp sold for in 2000. If it is near that price than it might be a good buy. Otherwise keep looking

  22. Blissex commented on May 10

    «The exorbitant prices were like a loaded gun aimed at young people and other first-time home buyers.
    As housing prices soared into the blue and cloudless empyrean, many deserving and hard-working young families were priced out of the market.»

    That’s a small minority of losers. Children of immigrants, children of dark/brown skinned parasites.

    If they cannot afford homes in nice neighbourhoods that’s a definite plus for the average voter.

    The deserving young people are the blonde, blue eyed, milk skinned hopes for the future, that stand to inherit at least one and in many cases 2-3 homes from their parents and grandparents thanks to the baby bust after the baby boom.

    The vast majority of voters, middle aged real estate owners and speculators, just hope that the rise and rise of home prices continues. “F*ck you! I am fully vested” politics is very popular.

  23. JB commented on May 10

    I visit this site daily and have learned a ton from Barry and pretty much every comment that appears on each post. That said, I am economist, and wanted to throw something out there for a reality check. I’m having an ongoing debate with a friend I respect a lot (but who is more bullish on things than I am) and am hopeful that the logic below makes sense. (Barry – if this is inappropriate, my apologies and I’ll understand if you remove it as a result. I figure it is beneficial if the logic is sound, and equally beneficial as others tear it apart, should it prove faulty.) I humbly look forward to any input.

    His take:

    I would expect, wherever there is a growing population, that rents will climb to meet the falling home prices. People needing a place to live because they cannot enter the home market due to tightening credit restrictions or forced out of their homes by foreclosure will still need a place to live. While the rental supply from foreclosed homes will increase, there will be an even greater increase in the demand for rental. That greater demand will drive rents – especially in places (like the north end) where the automobile is optional.

    My response:

    True, but my guess is that demand for rentals (and houses) will decrease as people move out higher-priced areas (Boston: North End, Back Bay, Beacon Hill, Brookline) to cheaper areas (Boston: Dorchester, Allston/Brighton, etc. + surrounding communities such as East Boston, Chelsea, Everett, etc.) until more normal rent-to-income and house price-to-income equilibriums are reached. Short-term, there will almost certainly be rent hikes, but long term, if there are sufficient recessionary forces to cause the ill-advised short term spike in rent increases, there will subsequently be wholesale decreases (rent and home purchase costs) depending on the duration of the recession (peak to trough slowdown vs. the prior 2 quarters method, which is incredibly slow in calling recession periods).

    Keep in mind that most people are just now starting to accept that we are in a downturn, landlords included. I have a feeling that most home sellers and landlords fall in the less-than-optimally-sophisticated camp when it comes to recognizing economic trends. Indeed, much of the current postponement of wholesale price decreases and market stagnation in homes comes from stubborn sellers not listing their properties marked to market, otherwise there would be far less than 9 months of inventory on hand. (Do these sellers think the average retailer would stay in business for long with 9 months of inventory on its shelves? Is a sale or clearance anything other than an attempt to move outdated inventory as quickly as possible off of the balance sheet and onto the P&L? I think not. And how many sellers, or soon to be sellers, recognize that their balance sheets are in horrible shape? And most of them can’t one day decide to raise $4B in cash by selling more stock just to stay solvent for one or two more quarters…).

    The landlord that fails to see that their newly hiked one-year lease should price in expected future rental demand if they don’t want to continually look for new tenants is in for a hard lesson 6-10 months from now (there is always the chance that the market will correct quickly and the spiked rents are sustainable, but I think the odds of that happening in this situation are slim to none). My guess is that as more widespread correction starts to build (we’ll know this summer, and then definitely following the election if momentum has not increased) most landlords will be forced to start dumping their properties. As rent demand shifts in the other direction (again, a shift from higher-priced areas to lower-priced ones due to a pinch per individual as well as the overly increased localized rents) many landlords will start to have major cash flow problems, if they aren’t already in that situation, and will likely sell to free up capital.

    The glut of less-desirable properties will only accelerate the decline (ahhhh…then we will finally be on our way to a more normal historical equalibrium). Unfortunately, landlords will then be battling an increasingly strong downward trend in property values (market perception + decreased demand + increasing supply) and a horrid economic contraction (sustained peak to trough decline, well into it’s “second year” by that point, I think). If it were me, I’d drastically slash expenses, clean up my balance sheet as fast as possible, and start hunkering down.

    While the above represents a more extreme view (though far short of many of the extreme-case scenarios I have seen justified, and quite well, recently), I think it is likely to occur. Anecdotally, I do not know many people aside from my wife and I that live well below their earning level with a savings rate well in excess of 0%. Indeed, most people I know still seem to operate at a break-even or ultimately negative savings rate. My guess is that the broader population probably falls into the break-even or negative camp as well. Once the decline hits a critical mass, and whether the like it or not, people will be forced to change their living habits just to cope (either due to employment contraction, wage stagnation or decline, continued increase in price level, contraction or elimination of their ability to use credit cards, or other factors). And that is not factoring in the massive number of people who are using their home equity (declining equity, at that) as a short-term cash-flow plug.

    …AND, this does not even factor in the massive glut of ARMs that STILL have to reset. Note that mortgage rates, despite the Fed’s routing, have not changed much in the last two years (in fact, I think they may have netted out a bit higher against all of the drops, though I not sure about that). Take a look at the following and tell me if you do not see a serious problem brewing (about which literally nobody in the media is talking about anymore [some chatter before the last batch of resets, but nothing since then]) next Spring assuming that there is not a noted reversal in the peak to trough decline we are in:

    Though the huge batch of subprime ARMs will for the most part cleared out by that point, those Option ARMs, if markets continue to decrease, will be no better for mortgagees. I suspect that we’ll start to see the media (mass media, that is) covering this somewhere around February 2009 (+/- 2 months)…

  24. JB commented on May 10

    Correction: The first paragraph above should read, “I am NOT an economist,” though I imagine that will be obvious to most.

  25. JB commented on May 10

    (closing the italics – sorry)

  26. Darkness commented on May 10

    “The deserving young people are the blonde, blue eyed, milk skinned hopes for the future, that stand to inherit at least one and in many cases 2-3 homes from their parents and grandparents thanks to the baby bust after the baby boom.”

    –Ha, ha, that’s until they discover the reverse mortgages that were applied to the houses. And, if they are in one of the few nice neighborhoods in a sea or rot, the tax rates can be exorbitant as the city tries to keep operating on a dwindling tax base.

  27. toronto condos commented on May 24

    Selling of homes in 2008 are going downwards according to the above bar chart.hmmmmmmmmm

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