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Tuesday, July 03, 2007

 

the last two housing downturns




the housing depression has continued to accumulate momentum, with things anecdotally getting yet worse in june. but as an effort to approximate a cyclical buy point, i thought this graph might be useful.

new starts peaked with prices and existing sales in 1978 and bottomed in 1982 (five years on). new sales and existing sales bottomed in 1982 as well. while overall inventory continued to rise, sales rose faster, cutting the months of supply from 1983 through 1986. real prices turned up in late 1983/early 1984.

new starts peaked again with existing sales in 1986 and bottomed in 1991 (again, five years on). prices leveled in 1986 but did not begin to decline until 1988. new sales and existing sales also bottomed coincidentally in 1991. increasing sales again decreased inventory as measured by months of supply from 1992 to 1994. the final low in real prices followed in 1994.

new starts peaked with existing sales in 2005. prices had not broadly declined by ofheo's measure through the end of 2006. it should show declines (as the case-shiller index did) in 1q2007.

one might expect, if precedent holds, for starts to bottom and inventory (as measured in months of supply) to peak around 2010 -- three years from now -- to be followed at some distance by a bottom in prices. this roughly comports with the new york times analysis, which shows house price downtrends to be persistent events lasting at least 14-16 quarters (ie, well into 2010). calculated risk there also notes, however, that the frothiest markets experienced longer corrections, lasting up to six years.

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I seriously entertained your advice of waiting until 2008 to purchase Gaius, but I could hold on no longer. I bought a condo near my daughter's school for 250k that had been originally listed for 275.
Given that the same condo would have gone for substantially more than the listing price only a few years ago (and quickly at that), I figure the sale price matches the overall area downturn pretty well which has been around 10% down from 2005.
Meanwhile the exploding area called Loudon county near here (Northern Virginia) is now "upside-down sale" central with foreclosures happening at a startling rate. People are literally just walking away from huge estates.

 
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congrats, imk! -- fwiw, i myself am not going to be able to heed my own advice and wait until anything like 2010. with a growing family headed by an insistent wife, who can? :) 2008 looks more likely for me. we'll see if things are better or worse then.

there is this to consider too -- while real prices may continue to slide for years, nominal prices may not if the monetary authority takes to the time-honored method of debasing the currency in order to escape the american debt bubble.

 
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Growing? Are congratulations in order?

It does look like putting one's money into something that isn't currency-based is a good idea and I feel pretty good about it. My condo is on the low-end for where I live, but it will just be my daughter and I for the foreseeable future.

 
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