Your Housing “Recovery” in Charts….

I’ve become much more constructive about housing in the last year.  But I still don’t understand the euphoria in some circles.  For the most part, I am still in the camp that says we’re in a post-bubble “work out” period.  That means the big price declines are past us, but the upside remains modest in most markets.

That said, I still don’t see the recovery in the various housing indices that many are raving about.  To me, this looks almost exactly like what I’ve been predicting all along.  A sideways market that is consistent with past bubble experiences.  Think Nasdaq, Shanghai, Gold in the 80s, etc.  In essence, it looks like a big L.

So far, the price action in US housing doesn’t look like anything that unusual for a post-bubble environment and it looks a lot more like a post-bubble “work out” than a recovery to me.  Obviously, I am biased towards believing that my view will be right, but you tell me what the pictures show….

Charts via Orcam Financial Group:


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Cullen Roche

Mr. Roche is the Founder of Orcam Financial Group, LLC. Orcam is a financial services firm offering research, private advisory, institutional consulting and educational services.

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  1. Well of course Cullen – if you insist on putting recent action in a long-term context things don’t look impressive at all…

    but if like most other “analysis” you’d prefer to focus solely on the past 12 to 18 months and project in a linear fashion, we should be at new highs within a couple of years!

  2. True, but does a 5% appreciation after a 40% decline really constitute a “recovery? I don’t deny that the 12 month data is much improved, but in the grand scheme of things we’re still basically moving sideways….

  3. well i don’t disagree with you thesis, but the 40% decline was a bubble break and prices working out back to fair value. If we have reached bottom and will grow at 5% a year over the next 10 years. to me that constitutes price clearing and now recovery.

    In an efficient system it will not make sense to recover to “bubble” prices.

    So it depends how you define recovery:
    A. Return to previous inflated prices (unrealistic)
    B. Price clearing to a new positive return market direction (not a bad time to buy a house if you understand the new paradigm) the idea that recover means we get back to 10% YoY gains is not healthy nor recovery.

    So really in my mind the question is the direction flat (not a recovery) or an appropriate level of realistic price appreciation (recovery)

    Thanks for the nice data as usual!!!!

  4. Absolutely agree Cullen… the way a lot of the financial media are insistent on reporting recent developments, there’s a sense that a spectacular bull market in property is in its early stages and you’re missing out if you’re not looking to get involved. The long term evidence you present shows that such views have little fundamental support.

  5. Cullen,

    Why a 10 city index and not the Case-Shiller 20 metropolitan area index. Certainly a wider and better gauge.

    As they say real estate is local, and the SF Bay area is out of control. Partially tech driven, and some areas are near pre-bubble burst range.

  6. These are the dozen or so most coherent posts that I have seen in one place on the real estate “recovery” since this bubble burst. The “recovery” that is still a work in progress is the recovery of people’s memories of what a real estate market normally looks like. Flat/down pricing for the foreseeable future sounds about right as any eventual increase in rates will help to discourage the market from putting on the silly paper party hats again.

  7. Prices will rise at least some due to inflation. Much home buying is investors paying cash. Robert Shiller pointed out in his book that since 1890 house prices really go up about the rate of inflation. People also fail to take into account maintenance and property taxes. A house always has and always will be a place to live. That’s pretty much it. It’s not really an investment.

    Eventually, interest rates are going to rise. Not only that but incomes are stagnant. I see rising interest rates in the years to come. I don’t see much in the way of rising incomes.

  8. Believe what you want but, this housing “Recovery” is nothing but propaganda. Large private equity moneys are buying all the cheap homes. Banks aren’t letting REO onto the market. California has made foreclosures almost illegal. FHA is letting people foreclosed on buy again only after 3 years. Foreigners are buying in mass. NAHB at 46 but still selling the same # of New Homes as 5 YEARS AGO!

    I can go on and on but you get the picture. But the MEDIA HYPE! Because that’s all it is!

  9. The 10 city has fallen about 30% and would need almost 40% rise to get back to the peak. A bounce of say 10% from a deep trough is not uncommon, but after that it could be a long slow grind.

    The fact prices are not falling and have shown some rises is likely to bring some balance back to the market.

    The certainty that prices will fall has been unsettled for many.