No, housing is not “bottoming.” Prices are still likely to fall another 15%-20%. They probably won’t bottom until 2011 at the earliest, and the total peak to trough decline will likely be at least 40%. But based on yesterday’s existing home sales report and December’s Case Shiller, we think we’re past the first turning point: The moment at which prices stop falling at an accelerating rate.
Put differently, we think that the rate of year-over-year price declines will begin to decelerate from here. We’ll look for confirmation of this in the Case Shiller January numbers, which will be released this week.
December’s Case Shiller 10-City index suggested that the rate of decline is peaking at about -19% year-over-year. Some analysts disputed this, focusing on the month-to-month numbers, but we think year over year is the best way to look at it.
Yesterday’s existing home sales data showed some similar positives, as can been seen in these charts from Asha Bangalore at Northern Trust.
First, the rate of existing home sales is stabilizing, at least temporarily. A high percentage of these sales are foreclosures or distressed sales–40%-45%–but the market is finally beginning to clear. The 1980-80 housing bust had a brief false recovery in sales, so we shoudn’t read too much into this, but stabilisation is positive:
Second, as in the Case Shiller, the year-over-year rate of price declines appears to be peaking:
Third, according to Northern Trust’s seasonally adjusted calculations, inventories are beginning to decline (months supply):
Again, none of this means house prices will stop falling soon. They won’t. But they are the first indications that the housing market will finally start getting worse at a decelerating rate. (Wall Street refers to this as the “second derivative,” and it is commonly thought to be an important turning point.)