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Are we seeing first signs of a bottom in housing?

Posted by: Dean Foust on August 20, 2007

Calculated Risk is one of my favorite housing-related blogs, even if I don’t know who really is the man behind the curtain (the anonymous author only describes himself as “a senior executive, retired from a public company, with a background in investing, finance and economics.”

Whoever he is, Mr. Risk has stirred the pot with one of his latest blog entries, in which he makes the provocative argument that we may be seeing the tentative first signs of a bottom in housing (or at least, a pre-bottom, if that’s even a word). He admits that we’ve still got to work through a lot of pain before housing markets really recover (and on that point, notes that in previous housing bubbles, housing prices fell for 5-7 years before they turned up again—meaning don’t count on an upturn until 2010 or 2012.)

One of the statistics that he hangs his hat on is “homeowner vacancy rates.” As he puts it:

Another piece of potential good news is that it appears the homeowner vacancy rate (from the Census Bureau) might have peaked.

The rental vacancy rate has been trending down for almost 3 years (with some noise). This was due to a decline in the total number of rental units in 2004, and more recently due to more households choosing renting over owning.

These vacancy rates are very high, but it does appear the rates have stopped climbing and - at least for rental vacancies - has started to decline. As starts decline (see Forecast: Housing Starts), inventory should stabilize and then decline, and the vacancy rates should slowly decline. More baby steps toward the eventual bottom.

Here’s the chart he provides showing the trend in vacancy rates:

Do I agree. Nope. As much as I respect Mr. Risk, I think he's guilty of either wishful thinking or a desire to be the first to call the bottom. Oh, he's definitely first. And about three years too early. I look at the statistics on the resets for adjustable-rate mortgages -- which really only start to spike next January and don't begin to subside until late 2008 -- and conclude that we're still in for about 18 months of bad road. Here's the chart, courtesy of InvestorsInsight (numbers are in billions). But what does everyone else think?


Reader Comments

Matt Carter

August 21, 2007 7:24 PM

Another interesting statistic to watch is house price acceleration. The rate of change in home price appreciation is bouncing back after 18 months in decline, evidence that prices at the national level are reaching their bottom, according to a recent First American CoreLogic report.

But there's no doubt the ongoing liquidity crunch could put a crimp on demand and prolong the downturn.


August 22, 2007 2:46 AM

The "Calculated Risk" guy seems to be looking for signs of a bottom based on a change in the slope of the hill. And he's being so tentative about it that I find it hard to believe that he even believes his own post as he's writing it.

Not that I think he's dissembling (I've written plenty in my day that sounded 'iffy' as soon as I hit the POST button on it), but he seems to be engaging more in gedanken economics than real, honest-to-Adam Smith, invisible hand speculatin'.

In short: while I respect his opinion a great deal (and I'm a regular reader of his blog, too), nothing anyone's said so far hasn't convinced me yet that our Long March through real estate Hell is any further along than its first few footsteps.


August 22, 2007 2:58 AM

Another point, regarding that ARM reset chart: I seem to recall another wave of resets scheduled to hit with the 5-year people, beginning in 2010. I know these folks are supposedly better equipped to handle this shock; but as I recall it, too, is a pretty sizable chunk of change.

And I have concerns that the housing prices of that not-too-distant future (not to mention the overall economic climate) will be about as helpful to them as it has been to the subprime chumps.

Unless there's some kinda New New Deal-esque "Federal Desperate Bailout and Kill the Dollar Plan of 2009" in place by then. And from this vantage point, I ain't takin' book on any of them odds just yet.

Viktor Kamber

September 3, 2007 8:02 AM

Sub Prime,
Discussing with financial partners it was stated that the sub prime crisis is heavily linked to criminal operations. The basic judgement was that out of the sour credits there went approx 25 % to real home builders, 25 % to speculators and the other 50 % were drained off by criminal organisations. Fact is, that the losses occurred can not merely come from over speculated business behaviour. The well informed circles keep very quiet about those facts. It's the criminal Industry against the financial industry and... shall the FED bail out the criminals too?? Probably this turns out to be the greatest deception ever.
regards Viktor Kamber

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BusinessWeek editors Chris Palmeri, Prashant Gopal and Peter Coy chronicle the highs and lows of the housing and mortgage markets on their Hot Property blog. In print and online, the Hot Property team first wrote about the potential downside of lenders pushing riskier, "option ARM" mortgages and the rise in mortgage fraud back in 2005—well ahead of many other media outlets. In 2008, Hot Property bloggers finished #1 in a ranking of the world's top 100 "most powerful property people" by the British real estate website Global edge. Hot Property was named among the 25 most influential real estate blogs of 2007 by Inman News.

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