The “Two” Housing Bottoms are Upon Us

The two bottoms of housing, normally independent, could come together in 2012 for a recovery.

“The housing bottom” is a term that gets thrown around quite often, normally in the context that once a bottom is reached, an inevitable (and long-awaited) housing recovery will quickly commence.

Over at Calculated Risk, the news is both positive and unorthodox – first, there are actually two housing bottoms, not one all-encompassing measure as is often reported; and second, both have indeed bottomed out and a recovery could be soon approaching.

“There have been some recent articles arguing the ‘housing bottom is nowhere in sight’,” wrote Bill McBride on the site. “That isn’t my view.”

The first housing bottom, McBride wrote, involves new home sales, housings starts and residential investment, and the second focuses squarely on pricing. Though the first bottom is more important, considering it ties more directly with jobs and the greater economy, the second bottom is more visible and, as a result, is more present on homeowners’ minds.

Though McBride wrote that the respective bottoms can occur “years apart,” it seems the two are coinciding in 2012.

“For new home sales and housing starts, it appears the bottom is in, and I expect an increase in both starts and sales in 2012,” he wrote.

Basing his projections on recent graphs, McBride points out that after falling dramatically from its peak in January 2006, housing starts bottomed in 2009 and have been running sideways the last two years. New home sales, correspondingly, followed a similar path, bottoming in 2010 and running sideways thereafter (the new home sales bottom was delayed by the first-time homebuyer tax credit).

And now, data increasingly suggests that prices are also nearing a bottom. Though home values are notoriously difficult to predict (and all the major housing indexes operated on a two-to-three month lag), McBride is pointing to March 2012 as the bottom for home values, with a couple years of sideways growth to follow, as has happened with the first housing bottom.

McBride cited three main reasons for his March date: first, recent price-to-rent ratios are nearing normalcy; second, the large decline in listed inventory means less downward pressure on house prices; and third, a number of government policies, from the new revisions of the Home Affordable Refinance Program to the mortgage settlement, will aid prices.

Such projections do not count microeconomic anomalies, such as areas rife with distressed properties, and a bottoming in home values does not necessarily imply an immediate rise in prices – but does it point to a definite light at the end of the tunnel? Have any of you observed similar trends and can see 2012 as a year of improvement? Do you agree or disagree with McBride?

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