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Saturday, July 18, 2009

Ritholtz: "Why are people calling a bottom for Real Estate?"

by Calculated Risk on 7/18/2009 03:19:00 PM

I'm working on a housing start post, but first ...

Barry Ritholtz presents the following graph and asks:

"I cannot figure out why people continue to call for a bottom in Real Estate — as if there is going to be this snap back any day now."
Goldman Sideways

Well I'm one of the people who wrote yesterday that a bottom for single family housing starts might have happened:
It now appears that single family starts might have bottomed in January.
A few quick points:

  • If single family housing starts bottomed in January, on a seasonally adjusted annual rate (SAAR) basis, the 12 month moving average of unadjusted data won't bottom until October or so (depending on the shape of the recovery). Using this method adds a lag to the analysis.

  • Barry also conflates calling a bottom in housing starts with: 1) "a bottom in Real Estate" and 2) "a snap back".

    First, there will probably be two bottoms for Residential Real Estate. The first will be for new home sales, housing starts and residential investment. The second bottom will be for prices. For more on this, see: More on Housing Bottoms

    Most people think prices when they hear the word "bottom", and the bottom for prices usually trails the bottom for housing starts - sometimes the two bottoms can happen years apart!

    Second, looking for a bottom in housing starts doesn't imply "a snap back" in activity. As I noted yesterday, "I expect starts to remain at fairly low levels for some time as the excess inventory is worked off."

    I'll have more on why the housing start report is somewhat good news soon.