Photo: mpb_eu, Wikimedia Commons
Pundits and bloggers are making predictions all the time, and usually they should just be ignored.Today though, the popular economics blog Calculated Risk published a post called The Housing Bottom Is Here. You should definitely pay attention.
Now first, let’s go over the argument.
To start, the post makes the obvious—yet all too frequently neglected—point that when it comes to housing there are two “bottoms.” The one that relates to economic activity and jobs is housing construction/new home sales. The other bottom refers to pricing.
In terms of new construction/total home sales, by all accounts we seem to have turned the corner.
New houses have achieved liftoff lately.
And as for total home sales, they’ve now flatlined.
Photo: Calculated Risk
As for prices—which is arguably the more difficult case to make—Calculated Risk writes:
The problem with using the house price indexes to look for a bottom is that they are reported with a significant lag. As an example, the recently released Case-Shiller index was for November and the index is an average of September, October and November – so it is a report for several months ago. The CoreLogic index is a little more current – the recent release was for December, and CoreLogic uses a weighted average for prices (December weighted the most) – but that is still quite a lag.
Both of those indexes will bottom seasonally around March, and then start increasing again.
There are several reasons I think that house prices are close to a bottom. First prices are close to normal looking at the price-to-rent ratio and real prices (especially if prices fall another 4% to 5% NSA between the November Case-Shiller report and the March report). Second the large decline in listed inventory means less downward pressure on house prices, and third, I think that several policy initiatives will lessen the pressure from distressed sales (the probable mortgage settlement, the HARP refinance program, and more).
Now you may have disagreements here, but you should absolutely pay attention when Calculated Risk makes a call like this.
The Calculated Risk archives go back to January 2005, so we’re talking at least 7 years of day in/day out coverage of the economy, and the site has always had a special focus on housing.
From 2006-2008, the blog was famously co-authored by “Tanta” (she passed away in December of 2008), who really put the blog on the map with her incredible knowledge of the housing and mortgage markets—knowledge that allowed her to anticipate the bust from miles away.
Throughout this, the main author—the totally un-egotistical Bill McBride (his name is not featured prominently—has plugged away, meticulously chronicling just about every economic indicator there is, from housing starts, the the Architectural Billing Index, the restaurant index, the regional Fed surveys, the ISM, and so on. And by diligently following these measures, he’s gotten to know them REALLY WELL.
Now, speaking from personal experience here, we can say that one of the best advantages you can get in the business of writing about economic conditions is familiarity with the data. So if you’ve covered lots and lots of jobs reports, you’re going to have a much easier time knowing what data is key to suss out, and when you’re seeing a turn.
Since Calculated Risk puts everyone to shame on this front, the blog regularly identifies key twists and turns.
For example, after years of super-bearishness on housing-related activity, it was early last year that McBride started talking about residential construction actually being a net positive contributor to GDP—the first time since 2005.
Also, because Calculated Risk keeps the best data of any blog, it’s always the first with now-classic charts like this one, every time a new jobs report comes out.
Photo: Calculated Risk
The bottom line is: Calculated Risk is exactly what you want in economics reporting. Totally non-ideological, non-book talking, data-driven, incredibly experienced, and just knowledgeable as all get-out.
When a site that got started by famously chronicling the housing bust says that housing is at a bottom, you listen.
Now read CR’s full post here.