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


10 Comments

  1. Joe Gordon August 19, 2008 at 8:21 pm

    lemme guess – is it bloomberg news or the new york times asking you all the time?

  2. Jonathan J. Miller August 19, 2008 at 9:07 pm

    Joe – ha ha! Lemme say it’s pretty much everyone.

  3. Ed Hunnicutt August 29, 2008 at 4:44 pm

    We won’t know until it starts to go back up – just like we missed the top

  4. Walt Baczkowski August 29, 2008 at 5:05 pm

    The “bottom” is when the home you want to buy reaches the price you can afford or are willing to pay. Differs with every customer. Experience shows that those that keep waiting for the bottom always seem to buy on the first up tick in prices.

  5. joe bingham August 29, 2008 at 5:15 pm

    The reality is 80% of the countries RE markets are at or have bottomed allready, if you define the bottom as…the point in which a prudent buyer can negotiate a price that is unlikely to go lower in the next 5 yrs…..then 80% of all markets in the Country are at the bottom now…if you define the bottom as the point at which the RE statisitcs say medium prices are increasing for the 1st time in years then we are a year or so away….because the statistics are always a year behind reality…

  6. Chris Stoner August 29, 2008 at 5:17 pm

    People love to speculate and try to “time” the market. It doesn’t work with stocks, it never works with real estate. People who need to sell, should list their house, people looking for a house should enjoy the buyers market, everyone else should enjoy life and wait until they join one of those two groups! Great article!

  7. Jonathan Smoke August 29, 2008 at 5:46 pm

    The fascination with calling a bottom in housing is especially ironic since most rational investors understand you cannot time “the market.” If you can’t time the market in stocks, bonds or commodities consistently (anyone could win at roulette a time or two), any strategy based on waiting to buy at a bottom in housing is equally problematic.

  8. Andrew Waite August 31, 2008 at 11:27 pm

    The housing market leading indicators started to climb out of the tank in March of 08. We called bottom when we saw a convergence of this leading edge inventory data by MLS block. We are now four months into a sustained trend. The dropping supply numbers need to be slice vertically (locale) and horizontally (price point) and it shows even more rapid absorption (in affordable, versus mid market conventional, jumbo or above $1mm,) in various markets than can be shown by gross numbers. When the newspapers get this they will be 90 to 180 days late. Best Andrew Waite Personal Real Estate Investor Magazine.

  9. Jonathan J. Miller August 31, 2008 at 11:36 pm

    Andrew – the 4 months March, April, May and June – thats the spring housing market – wouldn’t you agree? How does that compare to the prior years at the same time? This is the time the period of the year when prices and volume rise – aka “seasonality” no matter how weak the market is overall, no? I find it interesting that everyone who provides this as evidence is comparing against the prior several months, which is the weakest real estate market period of the year.

  10. Kauai Sales Statistics & Commentary, August 2008 | Hawaii Real Estate Blog September 2, 2008 at 9:10 pm

    […] course, a month’s worth of sales statistics isn’t quite enough evidence to go Calling the Bottom.  And what does that even mean?  What is the bottom?  Is it the bottom of the real estate […]

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