If we take a look at two metrics for housing and calculate a ratio for them, we can see that at 0.50 there would be no evidence for a bottom in housing at this point.
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June 29, 2008
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June 29, 2008 at 12:55 pm
Here’s housing starts data going back to 1959:
http://www.census.gov/const/starts_cust.xls
You’ll see that since 1959, at no time have housing starts ever been as low as they are now. In 1982 housing starts bottomed at 1.06 million and in 1991 the bottom was 1.01 million. And in both of those years, the population was far less than it is today.
Assuming 1% population growth, there are about 9 million more people in America today than there were three years ago at the peak of the cycle. That’s alot of bodies in need of a roof.
I think we are very near the bottom. But we could stay at the bottom for a while.
June 30, 2008 at 5:03 am
Groty,
By comparing “Starts” to “Sales” we can track inventory levels.
If more supply comes to market [Starts] inventory builds.
If DEMAND exceeds the new supply [Sales] inventory will fall or stabilise.
Hence, by watching this simple metric, we can track the supply/demand of the market.
jog on
duc
June 30, 2008 at 8:46 am
Gotcha. I see your point. Thanks.
June 30, 2008 at 12:10 pm
You’re forgetting about adding “foreclosure supply.” REO’s are far outpacing starts in the hotbed states like California. Crazy Mr. Mortgatge claims they’ve a four year inventory in SC.
Four years!
June 30, 2008 at 2:48 pm
I think Mr. Mortgage’s four years of supply is artificially inflated. I assume he’s taking current sales rates and extrapolating them.
But sales rates have been almost non-existent in part because potential buyers have deferred purchases waiting for prices to adjust. All the while, population has continued to grow.
Prices in the problem states of California, Arizona, Florida, and Nevada are now down, on average, about 25% from the peak. Just today I read about a small town north of San Diego where prices have adjusted about 50% from the peak.
http://gweston.wordpress.com/2008/06/13/san-marcos-real-estate-collapse-prices-down-more-than-50-from-peak-well-under-2004-pricing/
With 50% price adjustments, I can’t imagine it will take 4 years to absorb the excess inventory as long as incomes and job growth don’t collapse and we have a liquid mortgage market.
The mistake I made in the original post was saying I think we are near the bottom for housing, which was Duc’s subject. What I meant to say, but wasn’t clear about, is I think we are near the bottom in housing starts.
June 30, 2008 at 5:58 pm
Jake & Groty
Agreed with regard to REO’s, probably many banks aren’t even listing all that they could/should.
The market isn’t clearing, thus any call for a bottom is premature.
However, by keeping an eye on various metrics, when the bottom does eventuate, we’ll be ready.
jog on
duc