February '09

Last summer I made a bold call for a bottom in February '09. Six months, one stock market crash and one huge stimulus bill later, it's time to see where we are.

My basic model did not anticipate a rapid-onset recession and a 40% drop in Dow that decimated down-payment savings of top tier buyers and 401k's of pretty much everyone else. It also did not anticipate 4.625% interest rates and fat tax credits to new homebuyers. I made the forecast when oil was around $115/barrel and everyone was afraid of $200/barrel. Today it's $44.

The forecast was for a bottom in 150-155 range and we're certainly lower than that. And since interest rates are lower too, houses are quite a bit more affordable than I expected. Would that be enough to bring enough buyers out of the woods to stabilize prices?

City average: 43.4% off the peak, 44.8% above December 1999 (predicted March '09 Case-Shiller for San Diego: 144.8)
Top tier: 24.8% off the peak, 66.3% above December 1999
Middle tier: 42.0% off the peak, 47.6% above December 1999
Bottom tier: 50.4% off the peak, 42.5% above December 1999

As you may know, official C-S applies 3-month "smoothing" (averaging) to all numbers - one of the reasons why they are so much behind. To calculate final "March 2009" C-S, we need to look at sales through the end of March (even though it's most representative of sales in February). I get around that by publishing an estimate that's based on a single month of sales, then revising it a month later.

3-month averaging raises revised overall "February 2009" Case-Shiller to 146.1 - we still appear to be down month-to-month. However, we'll see what averaging does to today's number.

Middle tier is the most populous one - 50% of all houses - and it held up very well last month. Non-smoothed index for the middle tier is up 1.6% month-to-month, which is the first increase since 2007.

Top tier is still getting hammered, but the stimulus bill increased conforming loan limits from 546K to 697K as of February 18 and that may slow down the decline.





Is this the bottom (or at least "a" bottom)? Too soon to tell - we need a couple of months of steady appreciation to know for sure - but it's possible.