Case-Shiller from 3 months into the future

Monday, May 19, 2008

Is this the bottom?

San Diego Union Tribune ran an article claiming that San Diego county housing is bottoming. A couple of weeks ago WSJ made a similar claim: " is very likely that April 2008 will mark the bottom of the U.S. housing market."

Is it, or is it not?

* April is not a likely month to mark the bottom. Barring major interest rate moves or bailouts (which we did not have), typical seasonal patterns suggest that the bottom (as observed by a HPI) should occur in January or February. If you use Case-Shiller, you'll see it in February or March because its results are delayed by one month. Seasonal bounce can temporarily override the correction. It did that every year during the 90's bust. But, if it does not manage to do that till April, the correction is probably not over.

90's San Diego "false bottoms":
1993: May
1994: February
1995: February
True bottom: February of 1996

* Housing price uptick is only seen in median prices, not in this HPI. Median prices are notorious for their high noise levels. Whether we see an uptick in May, remains to be seen.

* Low and middle tier are close to fundamentals, but we're going through never-before-seen numbers of foreclosures (dwarfing anything recorded during the 90's bust) and those are likely to maintain some downward pressure on prices.
* High tier is nowhere close to fundamentals and '04-'05 vintage neg-ams are yet to reset to fully amortizing.

Based on current dynamics, I expect low and middle tiers to bottom in February '09. High tier will take longer.

P.S. closings through 5/22 suggest that the city is on track to shed at least another 1% off the peak in May. So much for the bottom. (That's another 4 billion dollars of "paper wealth" lost in one county, in one month)

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