That Elusive Bottom For Housing

Source: Decline of the Empire

Delusional optimism expresses itself in many ways, just as we would expect. It has been very popular for some time now to confidently assert that the “bottom” has been reached in the Housing Market, signaling that the economy is set make a miraculous comeback. The runaway express train our future economy will soon become will led by a big rebound in housing starts, purchases and prices. Before you know it, American “consumers” will once again be marrying & procreating, signing the bottom line on huge mortgage loans, living in 5000 square foot McMansions, installing granite counter tops, buying big screen plasma TVs, spending countless hours watching The Simpsons and Futurama… It’s all good!

Or will be, when we finally reach the housing bottom. While optimistic calls proclaiming the bottom are never-ending, the bottom itself has been elusive. Lance Roberts of CNBC’s Street Talk Live has created a helpful Total Housing Activity index which puts the housing problem in perspective.

There have been numerous media stories out over the last couple of weeks about the recovery, at long last, in housing. Of course, this is the same housing bottom call that we heard in 2009, 2010 and 2011.

So why not drag it out again for 2012? Eventually, the call will be right, and they will be anointed with oils and proclaimed to be the gurus who called the bottom. In the financial world you only have to be right once.

However, back on earth, where things really matter, housing is a major contributing component to long-term economic recovery. Each dollar sunk into new housing construction has a large multiplier effect on the overall economy. No economic recovery in history has started without housing leading the way. So, yes, housing is really just that important, and we should all want it to recover and soon. The calls for a bottom in housing now, however, may be a bit premature, as I will explain.

Lance says “The Total Housing Activity Index shown here is a composite of the sales of new and existing homes, new construction permits for single family homes and new single family home starts. As you can see, we are still near the same lows that we were in 2009 at the end of the recession. Furthermore, and what is really worse, is that the “recovery” was built on the back of a whole slew of tax payer funded bailouts, tax credits and incentives from HAMP to HARP to the Home Buyer Tax Credit. Not quite the recovery the government was hoping for.”

Further proof that we can not find the housing bottom comes from the most recent Case-Shiller Home Price index. Tim Iacono gives us the story.

Standard & Poor’s reported that home prices continued to decline in late-2011, the national composite index down 3.8 percent in the fourth quarter, 4.0 percent lower for the year, while both the 10-City and 20-City monthly indexes declined 1.1 percent in December and saw annual returns of -3.9 percent and -4.0 percent, respectively…

David M. Blitzer, Chairman of the Index Committee at S&P Indices noted the following:

While we thought we saw some signs of stabilization in the middle of 2011, it appears that neither the economy nor consumer confidence was strong enough to move the market in a positive direction as the year ended. After a prior three years of accelerated decline, the past two years has been a story of a housing market that is bottoming out but has not yet stabilized.

Up until today’s report we had believed the crisis lows for the composites were behind us, with the 10-City Composite originally hitting a low in April 2009 and the 20-City Composite in March 2011. Now it looks like neither was the case, as both hit new record lows in December 2011. The National Composite fell by 3.8% in the fourth quarter alone, and is down 33.8% from its 2nd quarter 2006 peak. It also recorded a new record low.

Despite our hopes that watching the Housing Market has been a valuable learning experience for those for whom the glass is always half-full, it has not been.

<Insert standard DOTE text about humans being unable to deal with Reality here>

Even if we do find the bottom in housing sometime in the next few years, it won’t mean a robust economic “recovery” is just around the corner. The structural problems plaguing our economy aren’t going to just magically disappear. Great hopes for the housing market are a form of nostalgia for the “happier” times before the bubble burst and Wall Street melted down.

Wishful thinking may make people feel better in the here and now, it may help them get out of bed, but it won’t change the fact that all that miraculous growth was a flimsy House of Cards to begin with. It won’t change the fact that those days are never coming back. Nor should they.

Read more at Decline of the Empire