One of the real estate conversations that everyone seems to have involves calling a bottom. Why are we so obsessed with calling a bottom?
If you’re right, you can claim it and tout it on your resume for the rest of your career.
I’ve certainly been asked the “bottom” question like a gazillion times. We should learn from the prior conversation, which was “calling the top.” In the prior scenario economists and pundits got lots of air time doing this. Call the top for several years and eventually you’ll be right. Consistency is a virtue.
Bob Toll said:
“People are looking for a reason to get off the fence. The most asked question in America today other than who Obama’s Vice President is going to be is probably when is the bottom? And if you even smell as though you are in real estate, people ask you that question all day long.”
Let’s have that real estate conversation now:
Q: When is the housing market going to bottom?
A: I don’t know.
One thing I do know, it is not going to be this year. And so what?
What does “calling a bottom” do for anyone, anyway? …especially if it’s only a gut feeling. Yun of NAR has been calling for a bottom more times than I care to recite and even his most loyal fans are getting numb.
The idea that we want to have finality with the problems of the housing market is certainly understandable. When someone is stepping on your foot, you’d like to get an idea when they’ll get off of it.
We simply need to know. Or as said in the movie “Dirty Harry” by a criminal who was staring down the barrel of a 44 magnum (the most powerful handgun in the world) …”I gots to know.”
“V” versus “L” shaped bottom
My biggest issue with the answer to this question is that it is misleading. To most consumers, the “bottom” means the end of housing market stress and it marks the point where things will get better. Trough to peak.
Have you looked at the credit situation lately? The health of the GSEs?
Calling a “bottom” today likely means the point where things stop getting worse. And a flat bottom could stick around for a number of years. Think about it. What constructive actions to restore faith in the credit/investor/financial markets which provide liquidity for mortgages have occurred since last summer?
Steep and Deep, Short and Shallow
Another issue that is clearly perverse and often baffling in the answer to the “bottom” question concerns the vastly different performance characteristics of each market. There is no national housing market.
Some markets will see the housing market deterioration as steep and deep, others will be short and shallow, and the remainder in between. While all markets are connected by credit and mortgage quality and quantity, local conditions rule. I think the upturn in Michigan, with it’s auto industry woes, is much farther away than south Florida, the current poster child for rampant speculation and five year inventories of the past several years.
I’m looking forward to getting to the bottom of the bottom discussion. Please.
UPDATE: The Economist is calling it: Behind the housing gloom is an improving backdrop
Tags: Lawrence Yun, GSE