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2012: Calling the House Price Bottom


Note: CR is on vacation, and I will return on Sunday, August 23rd.

In 2005 and 2006, I was researching previous housing bubble / busts to try to predict what would happen following the bursting of the housing bubble.

So, in April 2008, when many pundits were calling the housing bottom, I wrote: Housing Bust Duration

After another year (or two) of rapidly falling prices, it’s very likely that real prices will continue to fall – but at a slower pace. During the last few years of the bust, real prices will be flat or decline slowly – and the conventional wisdom will be that homes are a poor investment.

The Los Angeles bust took 86 months in real terms from peak to trough (about 7 years) using the Case-Shiller index. If the Composite 20 bust takes a similar amount of time, the real price bottom will happen in early 2013 or so.

And then in February 2012 I wrote: The Housing Bottom is Here

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).

And in March 2013, I wrote about the two bottoms – one for activity and the other for prices: Housing: The Two Bottoms

I pointed out there are usually two bottoms for housing: the first for new home sales, housing starts and residential investment, and the second bottom is for house prices.

[I]t appears activity bottomed in 2009 through 2011 (depending on the measure) and house prices bottomed in early 2012.

Calculated Risk

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