On Saturday, I posted this chart and wondered why “Some people were calling for a housing bottom.” That generated a ton of emails asking about for further clarification.

The people I referred to were the usual happy talk TV suspects (i.e.,  Cramer) who have been perpetually wrong about Housing for nigh on 3 years. I not only disagree with them, but don’t respect their opinion — essentially headline reading gut instinct big-money-losers. No thanks.

Then there were the slew of MSM who insist each month on reporting that 3% (+/- 11%) is a positive integer. We disposed of that silliness on Friday.

But the crux of the email was over this post. There are a handful of people whom I disagree with, but nonetheless have a great deal of respect for their methodology and process. Over the past year, these have included Doug Kass and Lakshman Achuthan and Bill of Calculated Risk. We may reach different conclusions about a given issue, or disagree on timing, but these are the folks whose opinions force me to sharpen my own.

When I tossed up that chart yesterday,  I had not yet seen Bill’s comments on the subject (McCartney!) but he is one of those people I can respectfully disagree with. We simply have reached different conclusions about the timing and shape of the eventual Housing lows.

There are a plethora of reasons why I believe we are nowhere near a bottom in Housing prices or activity. Here are a few:

Prices: By just about every measure, Home prices on a national basis remain elevated. They are now far off their highs, but are still remain about ~15% above their historic metrics. I expect prices will continue lower for the next 2-4 quarters, if not longer, and won’t see widespread Real increases for many years after that; Indeed, I don’t expect to see nominal increases for anytime soon;

Mean Reversion: As prices revert back towards historical means, there is the very high probability that they will careen past the median. This is the pattern we see after extended periods of mispricing. Nearly all overpriced asset classes revert not merely to their historic trend line, but typically collapse far below them. I have no reason to believe Housing will be any different;

Employment & Wages: The rate of Unemployment is very likely to continue to rise for the next 4-8 quarters, if not longer. This removes an increasing number of people from the total pool of potential home buyers. There is another issue — Wages, and they have been flat for the past decade (negative in Real terms), crimping the potential for families to trade up to larger houses — a big source of Real Estate activity.  Plus, more unemployment means more . . .

Foreclosures: We likely have not seen the peak in defaults, delinquencies and foreclosures. Many more foreclosures — which are healthy in the long run but wrenching during the process of dislocation — are very likely.  These will pressure prices yet lower. And Loan Mods are not working — they are redefaulting in less than a year  between 50-80%, depending upon the mod conditions themselves.

Inventory: There is a substantial supply of “Shadow Inventory” out there which will postpone a recovery in Home prices for a significant period of time. These are the flippers, speculators, builders and financers that are sitting with properties that they do not want to bring back to market yet. Given the extent of the speculative activity during the boom years (2002-06), and the number of foreclosures so far, my back of the envelope estimates are there are anywhere from 1.5 million to as many as 3 million additional homes that could come to market if prices were more advantageous.

Psychology: The investing and home owning public are shell shocked following the twin market crashes and the Housing collapse. First the dot com collapse (2000-03) saw the Nasdaq drop about 80%, then the Credit Crisis of 2008 saw the unprecedented near halving of the market in about a year. Last, Homes nationally have lost about a third of their value since the 2005-06 peak. Total losses to the family balance sheet of these three events are about $25 trillion dollars. These losses not only crimp the ability to make bigger purchases, it dramatically curtails the willingness to take on more debt and leverage. Speaking of which . ..

Debt Service/Down Payment:  Far too many Americans do not have 20% to put down on a home, have poor credit scores, and way too much debt. All of these things act as an impediment to buying a home. At the same time, to get approved for a mortgage, banks are tightening standards, including 1) requiring higher Loan to Values for purchases; 2) better credit scores to get approved for a mortgages; 3) Lower levels of overall debt servicing relative to income for applicants. Yes, the NAR Home Affordability Index shows houses as “more affordable,” but it conveniently ignores these real world factors.

Deleveraging: For the first time in decades, the American consumer is in the process of saving money and deleveraging their balance sheets. After a 40 year credit binge, its long overdue. The process is likely to go on for years, as a new generation is losing confidence in the stock market, Corporate America and their government. Think back to the post-Depression generation that were big savers, modest consumers, who eschewed credit and borrowing.  The damage is going to take a while to repair.

There are more reasons I expect the Real Estate market to remain punk for many years, but these are a good place to start when considering the question.

The Housing Boom & Bust, and the 2002-07 credit bubble created massive excesses. More than anything, it is going to take time to resolve them.


Update: July 20, 2009 1:30 pm

One last element that is so obvious I forgot to include it:  Zero % Interest Rates.

As many of you have written, when rates are this low, they only have one direction to go: Up.


See also:
Housing Starts: Is this the Bottom?
CalculatedRisk, 3/17/2009

Ritholtz: “Why are people calling a bottom for Real Estate?”
CalculatedRisk, 7/18/2009

Housing Starts: A Little Bit of Good News
CalculatedRisk, 7/18/2009

The Jalopy Economy
Jeffrey Gundlach
TCW, 06/15/2009

NAR Housing Affordability Index is Worthless (August 13th, 2008)

New Home Starts (July 18 2009)

Housing Starts Fall 46% (July 17, 2009)

Category: Economy, Real Estate

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

79 Responses to “7 Reasons Why Housing Isn’t Bottoming Yet”

  1. jeffgronwol says:

    How about #8 – abnormally low interest rates – central banks purchasing abnormally high amounts of US debt to keep rates historically low? Higher interest rates will result in lower affordability and – even more significant – people staying put in their homes (if they can afford them) to maintain their low interest rate mortgages. HGTV goes out of business, giving those annoying real estate agents one less outlet for their drivel.

  2. matt says:

    I agree with most of the above, except that credit is tight. Lending secured by homes still seems to be pretty reckless, where there is government subsidization. I’ve met 3 first-time home-buyers in the past six months with no substantial credit history who have managed to get 100 percent LTV mortgages on homes that cost more than the national median.

  3. urbandigs says:

    MARKET DYNAMICS – we must ask ourselves how natural market forces may affect numbers looking ahead, and whether or not housing starts may have bottomed. As for prices, can we all agree that we are referring to national metrics here, case shiller national home price index or 20+ metro indexes. We are not looking at individual markets.

    Ok, so we all know that foreclosures are taking up about 37% of all sales, a record number I believe. We also know there are short sales not included in foreclosures, and that we have pipeline foreclosures yet to go through. So yes we have some pipeline pressures here. However, once the wave of foreclosures passes, as we know it wont be record activity forever, the very removal of this element may in fact result in a natural bounce up in prices – however misleading it may be. We know MSM will go nuts over this if/when it happens, as they always do and bottom callers will be all over it fighting each other to claim they were the first and most righ to call the bottom. Math can play tricks and in this world, it may be enough to even boost confidence a bit and in fact have an effect on market dynamics and buy side psychology. All Im saying is the bulk of the move down seems to be completed and the question is whether we decline more albeit at a slower pace, or if we have some type of bounce back due to the wave of foreclosures that at some point in the future, will be passed its peak activity.

    This will not change the fact that housing will be tough, slow, and hard on sellers that really need to move property in local markets hard hit by this recession. It will not be that generally sexy asset class that everybody wants in on – the pain from this collapse is too great and damage done with credit bust. But we know the hedgies will bill buying distressed properties in bulk and who knows what their plans are.

  4. BrucieA says:

    Is the consumer deleveraging to any great extent? According to Karl Denninger, total consumer debt is down only about 2%.

    Not that it materially affects your diagnosis.

  5. BrucieA says:

    Here’s a different readable analysis.

    In 2004 consumers held $2.191 trillion. At the peak, they held $2.582 trillion. Today, less than three quarters later, they have cut back by an astounding $62 billion dollars in total, or a whole 2.36% – an absolutely inconsequential amount.

    Consumers have de-leveraged? Uh, no.

    From the video page referenced above, Mr. Denninger cites:

    Credit card debt 4thQ 2008: 960B
    Credit card debt (Latest): 928B

    That comes out to a 3.3% reduction – and that includes bank writeoffs…

  6. OregonGuy says:

    The Ritholz-CR “debate” is spreading (see Automatic Earth today for example), but I’m not sure there is actually a debate here.

    New home starts aren’t going to zero – there are people with money in the bank who want to build their dream home – and the level of new starts is so low now how much farther can these fall?

    Ritholz and CR agree that prices haven’t bottomed.

    Where’s the beef?

  7. Transor Z says:

    Barry, where did you get the 50% – 80% redefault rate w/i one year? Last week I saw stats from Barclay’s that put the top redefault rate with Countrywide’s portfolio at 50%. Everybody else was in the 20s and 30s.

    I don’t like the idea of chucking loan mods altogether because, like you said, the terms have a lot to do with the outcomes. My read is that the banks have made a half-assed attempt so far.

  8. steve glista says:

    Hey Barry, a request:

    Can you do a post on jobs that are driven by the trends you’ve identified? I’ve just finished law school, I’m taking the bar in two weeks, and the job market for new JDs is nonexistent- as I’m sure you’ve heard, many big firms are paying new recruits to take a year off. Current associates aren’t making their goal hours. Lots of layoffs, firms closing, etc etc etc.

    Yet with the spike in foreclosures, there must be a whole lot of work going on at banks and lenders. I know that personal BK firms are busy.

    Short version: If you wanted to look for a job helping people (or banks) work through the legal aspects of the real-estate meltdown, who would you call first?

  9. donna says:

    CR is talking about new housing investment, saying we’re near a bottom there. Doesn’t really mean the same as sales of existing inventory.

    San Diego is already starting to recover a bit, and we usually lead the way up. Even with 10% unemployment, which is very high for here, there are buyers, and we have several friends who have bought recently. But our market is normally very tight, so even this bit of looseness is now starting to get picked up pretty quickly at the lower and mid levels. High end will most likely hurt for a while.

    Riverside, now, that’s a whole different story.

  10. alnval says:


    Thanks again for the clear, uncomplicated, non-perjorative, analysis of where we are in the housing market. Many continue to forget that water runs down hill not because it likes it better in the valley, the logic applied by the 3 year old child, but because of gravity. Now if I could only get “WordPress” to apply your version of the rules to remembering my password it would be alot easier to compliment you more frequently.

  11. Jim Benham says:

    The best analysis I’ve seen of the current situation. Thank you for providing this.

  12. ZackAttack says:

    … why “Some people were calling for a housing bottom.”

    Silly Barry, providing a well-reasoned response to a question whose answer you already know. Of course, the people calling for a bottom are doing so because it would benefit their book if it were true. It can be made into retroactive truth if enough people can be persuaded to believe it; hence, the incessant PR campaign designed to convince the investing public.

  13. alfred e says:

    My recollection is it took more than a half a century.

    The demarcation is incredibly prominent. We went from the “Victorian Queens” of the late 1800s to the affordable 2BRs of the 50s.

    This dead cat bounce is going to take a long time.

    No more McMansions on zero down and two incomes.

  14. Mike in Nola says:

    Reports I saw/heard over the weekend say that something like 80% of the buying in the bubble areas now is first time buyers and investors. These don’t seem to be very “strong” owners. Looks like the makings of another bubble that will pop if things get worse, as they likely will.

    If the first-timers are getting 0 down and close to 100%LTV, as many are, they won’t be in a very good position to withstand diversity, e.g. layoffs or cutbacks in hours. They will be in the same boat as all the other people underwater.

    Possibly the same for the investors. In Houston, all day Saturday there were programs on how to get rich either flipping or renting out foreclosures. These clearly weren’t aimed at experienced investors who were well capitalized. Every weekday there is a program offering newcomers advice on how to buy even with bad credit and using private loans cause there’s no way they could qualify for a bank loan. Many sound like they are encouraging leverage. Supposedly they buy a foreclosure, rehab it and rent it, then use that to buy more. Rents have been dropping here and I suppose elsewhere. What happens to these newbies with no capital if the rent doesn’t cover the note they have with the loan sharks? Or the part timer investor who gets laid off?

  15. As a semi-perma bear, Barry’s article makes sense. I’ve yet to read his links.

    Here’s something to try. Go to your local multi listing service on the web. Search for homes in your zip between $600k and a Million. Then search for homes over a million.

    In my south suburban Denver zip, there are 30 homes in the first category, up form 15 a couple of months ago. And there are 68 in the $1 million+ category, up from 65 a couple of months ago.

    In the Breckenridge, CO, ski resort community, out of 683 listings, 172 are listed at $1 million+, 169 at $600k to $1 million, 195 at $300k to $600k and the balance under $300k.

    These markets look awfully weak to me. In Denver, I know some high end homes are moving at 15% to 20% below list. In the mountains, I’ll bet they’ll move at 30% below list. How does your market look?

  16. thetanman says:

    May and June GSE MBS issuance totaled almost $450 billion. BAC reported $100 billion of new mortgages for Q2. Doesn’t look like too many are putting up 20%.

    Interesting RE markets in Canada and China. Canada’s RE market is in full swing with prices skyrocketing and China has turned on the lending machine to unprecedented levels. RE prices in one Chinese city shot up 6.4% in a week! This is the largest, most determined reflation event in history. This time it really is reflate or die.

  17. The Woodsman says:

    Here in our little town in NH of 1700 people we have 58 properties for sale. When we sold(thank you God) our other house here in 08/06 there 11 properties for sale. The range in prices is $60,000 to 1.2 million(lakefront). Friends in the real estate business say very little is happening in the market. One of the lower end houses was recently reduced from $112,000 to $79,000, my bet it sells eventually for $50,000. It is scary to see how much property is for sale and how little is selling. This is a very nice town, one of the prettiest in the state. Interesting times to say the least.

  18. Tom K says:


    What are your thoughts on Intl. Real Estate (SPDR Dow Jones Intl Real Estate RWX)? This is one of my top ranked asset classes right now, even though we keep hearing about the impending collapse of domestic commercial real estate.

    There’s a pretty big divergence between U.S. and International: http://tinyurl.com/lvxqya

  19. algernon says:

    Barrry, your analysis is right on.

    I would add that in ~2011 when housing prices might otherwise make progress, long-term interest rates will have begun a secular ascent.

    You are so sharp generally that I’m compelled to suggest you write ‘people with whom I disagree’ rather than “people whom I disagree with”

  20. wunsacon says:

    …and “7 Reasons — Housing Isn’t Bottoming Yet”.

  21. Mike in Nola says:


    Helicopter Ben needs to talk the Chinese into lending to US homeowners directly. China has the money. Whaddaya think?

  22. wunsacon says:

    I suspect that this seasonal uptick is accentuated by some knife-catchers with weak hands.

    Look, there’s a government bonus for buying homes. Doesn’t that artificial pumping raise sales and prices over natural trendlines? But, all it does is put some money in the *sellers’* pockets. Once the support is removed, the asset price decreases immediately by the amount of that missing support.

  23. Groty says:

    There’s no standard definition for a “housing bottom”. To some people it means prices have stopped falling, to others it means housing starts have stopped falling, and to the next guy it means sales of existing units have stopped falling.

    I think OregonGuy has it right about housing starts. With housing starts bumping along at the lowest levels in 40 years, when there were about 100 million fewer people in the country, and knowing there will always be some number of custom built “dream homes” each year, I have to believe we are close to the bottom in housing starts. But we’ll probably bump along at this low level of housing starts for at least a couple of more years.

  24. Bob A says:

    Renting is much Cheaper than Buying even now for many potential buyers
    (case in point my brother who just rented instead of buying when he moved)
    – and as long as it remains that way many people will rent not buy
    – especially when the common perception is that prices may go lower
    – and many people know they may still get laid off even if they’re still working
    – and a HUGE percentage of purchases during the bubble were based the idea that it
    was ok to pay much more in payments than you would pay in rent because you would
    make money on appreciation

  25. pigpen says:

    BR, don’t you mean by requiring lower Loan to Value for purchases?

    At the same time, to get approved for a mortgage, banks are tightening standards, including 1) requiring higher Loan to Values for purchases;

  26. [...] The Big Picture, Barry feels that housing markets are nowhere near the bottom in terms of either prices or activity. He makes a number of arguments to support his position; historical comparisons, market trends, [...]

  27. matt says:

    @mike in NOLA: “Helicopter Ben needs to talk the Chinese into lending to US homeowners directly. China has the money. Whaddaya think?”

    :D I know you were joking, but on a serious note, I think that a lot of China’s money could end up going to Africa over the next decade. Think about it – you have a continent that currently contributes to 2 percent of all global trade. It is raw and untouched and Westerners don’t have business plans for Africa – they only have pity and throw money to corrupt officials (who then transport the aid to their private accounts in Europe).

    But hey, who am I to argue with an Irish rock-star about economics?

  28. alfred e says:

    @matt: correct. They have already started buying their way in. As has Microsoft.

    The last frontier.

    If we can keep them from dying or killing each other, they are absolutely the last consumer frontier.

    Well OK, Mongolia. But the animosity there is beyond description. And you think the Rebs hate the Yankees?

  29. alfred e says:

    @whoever mentioned San Diego.

    Love San Diego.

    But it’s a fed gov town. Plain and simple. It’s where all the fat cats want to retire to. Screw LA and SF.

    I’d like to also. Can’t crack the nut. Unless I want to buy a poorly built house in the desert.

    Their city budget is so, so underwater. And they continue to dump raw sewage.

  30. Latesummer2009 says:

    Another reason often overlooked is the difference between “Price” and “Value”. In a deflationary environment, history shows us that asset classes usually revert to the mean. When this happens, people begin rethinking what intrinsic “Values” are as opposed to “Prices” paid during speculation. On the Westside of Los Angeles that could mean an additional 40-45% off current prices. Having dropped 15-20% already, brings us to 60-65% off at the bottom in 2012-2013.

    With Alt-As and Prime recasts on the horizon, it’s going to get very interesting.


  31. Pat G. says:

    I totally agree with your assessment of the housing situation based on the reasons you’ve given. And I can’t think of an additional reason. But why would I even try? It’s going to be awhile before your seven reasons get worked through.

  32. [...] they are just doing their part to stir up the animal spirits. Nonetheless, Barry Ritholtz provides a list of 7 reasons (actually I count eight) why the housing market hasn’t reached bottom. The last one was most [...]

  33. Robert Campbell says:

    You’re right , Barry – for all the reasons you mention and even a few more that you didn’t mention.

    I track 17 major U.S. cities – and the trends continues to be down for all of them.

    The housing market isn’t out of the woods yet by a long-shot.

    Based on reversion to the mean data, past cycles and resetting loan schedules, I would expect to see the most U.S. housing markets bottom around 2012.

    Robert Cambpell

  34. toddie.g says:

    @ Tom K. ….thanks for pointing out that RWX chart. It’s constructive and I am taking interest in that because I have recently been picking up some IGR, attracted to the 11% yield (at 4.90 when I bought my initial slug) and the 6% discount to NAV. I’ll keep an eye on RWX for guidance as to when to add more IGR.

    Here in Miami , real estate just looks too dicey to even think about speculating in. I’m told by a very good real estate attorney I know that it’s virtually impossible to get approved for a mortgage in a building that has a foreclosure, which then excludes so many buildings. I think Miami is somewhat unique because so many of the speculators were locals who pyramided multiple properties and they are flat on their back. The job base just wasn’t here to begin with. Many buildings in the Biscayne corridor and downtown were built on the promise of newly developing neighborhoods, trendy restaurants and cafes opening up, cute boutique shops etc etc. That won’t happen for at least 7-10 more years, if ever. Anyone buying in those neighbhorhoods are buying in a veritable ghost town, where it would just feel eerie to be out on the streets at night. That area of Miami was gobbled up by speculators and they can’t sell to anyone. It reminds me of back in the 80′s in a very hot Manhattan market when people were saying Harlem was going to be the next big thing. It took 20 years for Harlem to be the next big thing. I have decided not to try to bottomfish in the Miami market for a speculative property. Who needs the agita?

  35. Mike in Nola says:

    I wonder if China is about to pop it’s own real estate bubble. One of the regulators is expressing concerns over risk taking: According to Michael Pettis, there is a very heated internal debate over the excessive and lax lending.

    “(We) must control the risk of real estate loans,” said Liu Mingkang, the head of the China Banking Regulatory Commission, adding that measures must be taken to better evaluate the creditworthiness of borrowers.


    The trouble is that, as happened here, the only thing holding the bubble up is increasing prices. Once they put the brakes on and speculators try to sell and can’t, the governement will lose control of the deflation just like Bernanke did.

  36. David Yaseen says:

    Hey Barry,

    Bill didn’t say anything about a bottom in prices; he was only talking about single-family starts. As far as prices go, he wrote:

    “Most people think prices when they hear the word “bottom”, and the bottom for prices usually trails the bottom for housing starts – sometimes the two bottoms can happen years apart!”

    I don’t even see the basis for a discussion here, much less an argument.

  37. thetanman says:

    Mike in Nola,

    The usual sequence is:

    1. Things start to look a little freaky.

    2. The politicos try jawboning the problem while the bubble continues to accelerate.

    3. More jawboning while things get even crazier.

    4. Some wimpy policy change and more jawboning. Bubble barely notices and continues to accelerate.

    5. A little bit stronger, but still ineffectual policy change combined with a few veiled threats. The Chinese seem to like these obscure pronouncements. Bubble may hiccup, but from experience investors who have missed out know to pile in on any perceived threat to the growing bubble.

    6. More ineffectual farting around while the situation becomes very unstable.

    7. Finally do something substantive during the blow off phase the bubble that really puts some stank on the subsequent contraction.

    8. Stimulus to stave off total collapse and its onto the next ponzi escapade.

    The important part is this process will take years. So if you think the Chinese are fomenting a bubble, pile in now and ride the wave for at least a couple of years.

  38. thetanman says:


    I almost forgot-Pettis thinks they won’t do anything until after the October 1st national day.

  39. Mike in Nola says:


    The one big question is the current stage of the bubble. There were many reports of problems in the Chinese banking system from bad loans before last year.

  40. danm says:

    New home starts aren’t going to zero – there are people with money in the bank who want to build their dream home – and the level of new starts is so low now how much farther can these fall?

    Ritholz and CR agree that prices haven’t bottomed.

    Where’s the beef?

    Well what if most of the building occurs because it is cheaper to build than to buy… doesn’t this just add to inventory? Not good for prices if you ask me.

  41. danm says:

    Interesting RE markets in Canada and China. Canada’s
    BoC has cut the rates drastically to maintain asset values. I know quite a few people who’ve managed to get mortgages around 3.5%. Of course they got bigger than they could afford if the rates were 5%.

    And our mortgages aren’t fixed for 30 yeras, they get renegotiated every 5 years or so.

    They’re just creating an even bigger bubble. It’ll pop.

  42. dead hobo says:

    Housing and the economy will suck for a longer time than most people think. The world economy will not improve until the world’s financial systems improve for the benefit of the common person and stop working chiefly for the benefit of the top level of finance. Real estate is a symptom, not a problem.

    The world’s financial systems have evolved into a giant vacuum cleaner that sucks money out of wherever it can. Commodity prices are controlled by the demand for speculative paper that is related to the price of the commodity. In the not too distant past, commodity prices were set by the interaction between users and speculators in the actual commodity. The world needs predictable prices for the most common things on earth as a prerequisite for any bottom in anything.

    The stock markets are controlled by about 100 computers that trade about 70% of the volume on the NYSE, or so various articles say. The liquidity provided by this is similar to the liquidity on a gaming table. There is no legitimate price setting mechanism for equities. All the common investor / day trader can do is bet on if the computers will end up or down for the day based on what their programmers and systems managers decided for the day. Based on observation, it is now illegal to short the market, although suckers are drawn in regularly by the programmers.

    High frequency trading pays fees to GS and possible others just for bringing in the sucker investors and keeping the game going. They are said to earn 1/2 cent per share on some of the volume, regardless if the price changes. 1/2 cent times billions of shares adds up. GS is said to be about 20% of the 70% mentioned above. Thank the NYSE and Uncle Stupid for the GS money machine.

    Then there is/was the possible JPM/Fed connection where JPM got money from the Fed in massive amounts to pump SPY, and the market in general. The pump may be gone for now, but why did it exist in the first place? An audit of the Fed would prove whether this is just conspiracy theory or fact, but Uncle Stupid won’t permit anything even so basic. This makes one wonder, has the Fed devolved into the slush fund of the US Government and now secrecy is paramount to keep it going?

    Media such as CNBC (now to be also referred to as Pee Wee’s Playhouse) provide little to no analysis. It’s all bulls and bears and “Beat Expectations’. Hype appears to be disguised as news much of the time.

    Yesterday I spent some time with relatives who also invest. None were even slightly aware of high frequency trading. After describing it, they thought it was a good idea because it added liquidity. My distress came across as paranoia because of a childlike belief that the government would never let anything like what I described happen. Their naivety is the power the government relies on to perpetuate the current financial mess we have, probably thinking it will buy time until a better idea or a recovery happens along accidentally.

    Thus, housing is a symptom. Fix the real underlying problems (a crooked and dysfunctional world market in finance) and housing will start to fix itself. Housing will just get worse until then. No matter how much money is pumped in. And, since the government appears to be significantly influenced by those who profit from the corruption, I don’t expect much soon.

  43. thetanman says:


    That was something I didn’t know about Canadian mortgages until a few weeks ago. Thanks for reminding me. Garth Turner is constantly harping on the difference.

  44. jc says:

    Mark Hanson – Field Check Group publishes tons of info on RE, primarily CA, no where near bottom!


  45. jc says:

    I think the shadow inventory is primarily due to banks waiting on this US program which would buy foreclosures at a “fair” price and then rent them to the foreclosed (former) owners at a fair price. With 1 million homes in foreclosure now and an estimate of about 4 million coming it will probably take trillions to implement this program, Timmy only has about $50B of pin money left in TARP. Apparently the banks knew about this program before it was disclosed to the general public thats why they’ve been holding hundreds of thousands of shadow homes.


  46. Bruce N Tennessee says:


    Fiscal ruin of the Western world beckons

    “The Fed’s doctrine – New Keynesian Synthesis – has let it down time and again in this long saga, and there is scant evidence that Fed officials recognise the fact. As for the European Central Bank, it has let private loan growth contract this summer.

    The imperative for the debt-bloated West is to cut spending systematically for year after year, off-setting the deflationary effect with monetary stimulus. This is the only mix that can save us.

    My awful fear is that we will do exactly the opposite, incubating yet another crisis this autumn, to which we will respond with yet further spending. This is the road to ruin.”

    …H0using bottom? Perhaps not. Someone wise once said to beware the idealist who runs his life on theory…much better the practical man…Thomas Edison once said that progress was 1% inspiration and 99% perspiration…here we are asked to “drink the kool-aid of theory” when day to day existance would suggest we’d be better off to try to get a handle on all debt..private and public.

    Now we see that taxes and government influence on our welfare is going up dramatically. I think this is a very bad thing, and we will soon suffer all the more. The “put it on my tab” administration…

  47. constantnormal says:

    Another curious statistic — the domestic economy is anchored in housing (or so I’ve been led to believe), with the bulk of the banking industry dependent upon a solid housing market and viable mortgages. The rest of the domestic US economy is built upon that bedrock — to some degree at least, and it is not unreasonable to say that the economy cannot thrive without a viable housing market.

    Barry Ritholtz has a VERY bearish view of the housing industry, expecting things to worsen before they improve. Yet Barry’s investments are 80% long (or were a short while ago, during a time when teh housing market is pretty much unchanged from today). So what gives? How can these two facets be reconciled?

    Barry, do you have any of your long positions in the housing market? And if not, why not? Won;t beaten-down housing stocks rebound just as nicely in a dead-cat fashion, as the rest of the economy? If people can afford to buy iPhones on credit, why won’t they buy a new car at bargain basement prices (excess inventory being sold at auction), or attempt to flip their homes and pick up a better house in a foreclosure sale (never mind that they probably won’t be able to sell their existing home)?

    Either Mr Ritholtz is gambling with his clients moola, trying to capture the last wisps of froth in a bear market rally (which is looking less and less as such with each proceeding up day), or perhaps there is a bottoming occurring in the housing markets, and despite ridiculous fundamentals, it will claw its way higher, with all the help it can muster from Uncle Sam. The same can be said of the stock markets.

    But regardless of which eventually turns out to be the case, there is a definite disconnect here.

  48. [...] 7 Reasons Why Housing Isn’t Bottoming Yet — Barry Ritholtz – Solid analysis. [...]

  49. 88veca says:

    To put that 25 trillion in perspective, 25 trillion is that mount of the world GDP. American housing value has fell by literally the same amount of money made the whole world over in a year. That’s incredible

  50. dead hobo says:

    constantnormal Says:
    July 20th, 2009 at 8:57 am

    But regardless of which eventually turns out to be the case, there is a definite disconnect here.

    You’re right about the disconnect. Nothing that goes on in the stock market at this time has anything to do with investing. The market is chiefly controlled by computers, programmers, systems managers, and tactical managers. Imagine 100 people sitting around a big table all playing for the pot, with an occasional sucker drawn in to the open game. The biggest pots control the way the game goes. Anyone in the market today is just making a bet on which direction it will go for the next few days.

    The stock market has nothing to do with the economy at this time, except as a means to bring in fresh cash from those who don’t recognize the real game being played.

  51. Bruce N Tennessee says:


    California’s budget gap won’t close for long

    ..The ONLY way out for California is to decrease spending…I’d be delighted to read something otherwise….

    “”It will be horrible next year,” said economist Steve Levy of the Center for the Continuing Study of the California Economy.”

    I have read estimates that next year’s deficit might be 52 billion..remember Arnold fixed the budget for this year once when the estimate was >40 billion….

  52. constantnormal says:

    @ dead hobo — so why isn’t it just as valid to play the game in the housing industry as teh rest of the markets?

    And can we have a serious high stakes poker game going on while the larger society has economically burnt to the ground? (I have this picture of figures in tattered top hats seated around a poker table in a house that has the roof gone and the walls are falling down … the game must go on!

  53. dead hobo says:

    constantnormal Says:
    July 20th, 2009 at 9:26 am

    … the game must go on!

    And it will, you can be certain (I’m not being sarcastic, either). As long as it is possible for iBanks and hedge funds to use the financial markets profitably as a cash extractor, the game will continue and Uncle Stupid will protect it.


    BTW, ZeroHedge has noted that GS is predicting S&P1060 by the end of the year and blowout earnings, all of which correspond to a conservative P/E ratio for the S&P. TD thinks this is a head fake and a sucker advertisement to offload positions it has accumulated over the past few months, just as when it predicted $200 oil right before the markets fell.

    As long as conspiracy theories are being noted, here’s a few that also tie into end of year possibilities that aren’t nice for the stock market (I don’t remember where I found them)

    1. GS and others are massively shorting gold at the end of the year

    2. The COMEX allows gold to be delivered using gold ETF certificates as opposed to the real commodity, creating speculation that it has less gold on reserve than most people believe.

    3) The government support for the current stock market floor will end later this year (my personal thought)

  54. jc says:

    All the US help for defaulting mortgages has been aimed at primary residences, no? Nothing has really helped, not -5% underwater, not -25% underwater and now we have a proposal for the US to buy and rent foreclosures. One big problem however, according to NAR between 33% and 40% of home sales in 2004-2007 were second homes not eligible for help. The proportion of second home sales must be considerably higher in the bubble states and these homes were bought at or near the top. Depending on the leverage these owners no longer have any skin in the game and the US programs aren’t designed to save the banks from risky loans on second homes.

  55. Mike in Nola says:


    Best illustration of the disconnect of the market from reality is Halliburton this morning:

    Halliburton Profit Drops 47%, but Tops Forecasts

    Statement from the Chairman:

    “Due to the continued weakness in natural gas demand, reflected in the high injection rates for working gas storage, we believe it is unlikely that there will be a meaningful recovery in natural gas prices and, consequently, drilling activity for the remainder of the year,” Dave Lesar, chairman and chief executive officer, said in a statement.

    Stock is up over 3% at the moment.

    Complete euphoria where even the outlook by the guy who should know the best doesn’t matter. Everyone looking for that greater fool. Only question is where it stops.

  56. Helene says:

    Saw your post on housing last week. This is just an anecdote.

    My 25 year old daughter has been working in Minneapolis for just over a year — not much of an employment history — and makes between $30-40k/yr; not exactly a huge salary.

    She has caught home buyers fever with all the media hype. She tells me last month that she can buy — hope you are sitting down for this — a home for $160k. She can put 3% down. You got that? I did not miss a zero — and finance the rest.

    Are you sure? Yes, chatted with a mortgage co and I’m already approved.

    So, she can put down less than 5 grand on a 160k house.

    Where are those tighter lending issues? isn’t this what got us into this mess in the first place?

    My niece in St. Louis put down 20% (first time buyer; 26 yrs old, makes ~$50k/yr) on a home. had to pay a bit more in interest due to her ‘not so great’ credit, but i think she’s got a loan for 5 3/8% which isnt so bad when you think about it.

    So there’s two stories of maybe not sub prime folks who did not have to put 30% down and the banks are happy to loan ‘em money.

    what gives with this?

  57. Mike in Nola says:



  58. hopeImwrong says:

    This is starting to feel like all the other times I was bearish and wrong.

  59. danm says:

    All the US help for defaulting mortgages has been aimed at primary residences, no? Nothing has really helped, not -5% underwater, not -25% underwater and now we have a proposal for the US to buy and rent foreclosures.
    While most hoped that government intervention would help fix the problems, I’ve surmised that the biggest reason governement is bailing out firms is because it can’t just sit there and do nothing. IMO, fixing the problems were never part of the equation.

  60. hopeImwrong says:

    Technical action looks strong over the last week. Over-extended, but strong. A weak pullback would be a reasonable prelude to further upside.

    Will 666 be the ultimate bottom for this cycle?

    More and more it is looking like it could be. That doesn’t mean we won’t be at S&P=1000 in 2017. It just means we won’t see 666 again.

  61. [...] the end of a long post arguing the housing market isn’t near a bottom, Barry Ritholtz offers this: For the first [...]

  62. tom_k says:

    “At the same time, to get approved for a mortgage, banks are tightening standards, including 1) requiring higher Loan to Values for purchases;”

    I think you mean requiring -lower- LTV for purchases. A higher LTV would mean less equity.

  63. constantnormal says:

    @Mike in Nola 10:03 am

    I’ve observed similar nonsense in the Canroys. I keep waiting for them to collapse in price so I can buy into a high dividend yield (hope it doesn’t get cut, hope it doesn’t get cut, …) in the 20%-25% range, and then see gas & oil demand rise a bit, in a repeat of what we saw in March.

    I think I’m gonna be waiting until the sun burns out for that, though …

    Surely at some point the madness will all crumble in on itself, and the last owner of QID will see his shares jump up to as much as 30% of what he originally paid for them.

    Amazing how far from reality things can still get, even after the scare we’re been through, and the pain that huge numbers of unemployed are feeling. This really is the richest nation on earth (for at least a while longer) if we can flush away such incredible amounts of money and not really have changed at all.

    Kinda boggles the mind at the magnitude of the financial catastrophe that will eventually be required to get America to wake up and smell the coffee … I’m a believer that the US Treasury is destined to lose its credit rating in the next 12 months, following in the footsteps of AIG.

  64. Mike in Nola says:

    Some interesting reports on Chinese real estate at Michael Pettis blog. He predicts a Japanese style outcome rather than a crash.


  65. jc says:

    The effect of job losses on the economy are cumulative and then the increased savings rate magnifies the effect on consumer spending.It will be a long time before we have increased discretionary spending pumping up corporate revs!

  66. DeDude says:

    I agree with most of your list of items that puts pressure on prices but think most of them are already priced into the housing market. We also know that it is not all reversions that make it all the way back to the mean; sometimes they just dip and go wild again for a while (before they eventually “cross the line”).

    I think the is a number of things that will counter the downwards preassure and support house prices.

    Housing starts are stabilizing at about 500K and my guess is that we will stay in a 4-600K chanel until unemployment turns around; then starts will be improving substantially. This means that the current oversupply is shrinking at a pretty good pace and that will help support the price.

    We are currently moving from an almost completely frozen loan market to one where it is getting a little easier to get a mortgage. Greed will soon again outpace fear, because that is what happens over time.

    The $8000 of government money for those that purchase before the end of this year is a very strong incentive that will move people with money (and we are not ALL broke). This will create stabilization, or maybe even a small increase in prices, and that will get even more people off the fence.

    There is a pretty strong movement of investors purchasing at the current price levels to rent out the houses.

    The boubble will be re-blown because there is so much money to be made on it.

    My guess is that within the next year prices will fall no more than 10% and that a year from now they will be up about 10 % from their low (just a bit below where they are not). From there it all depends on whether we end up with a double dip ressesion or just a real slow grinding haul out of the one we are in now.

  67. [...] Why housing hasn’t bottomed yet.  (Big Picture) [...]

  68. [...] Barry Ritholtz has a really good post which outlines the reasons that he doesn’t think house prices have come anywhere near a bottom. Here is his logic: • Prices: By just about every measure, Home prices on a national basis remain elevated. They are now far off their highs, but are still remain about ~15% above their historic metrics. I expect prices will continue lower for the next 2-4 quarters, if not longer, and won’t see widespread Real increases for many years after that; Indeed, I don’t expect to see nominal increases for anytime soon; [...]

  69. DeDude says:

    The program for “rent your previously owned house” is not likely to get a lot of success. Its just to humiliating, and people will rather leave their failures behind than coming home to them every evening. What they need is a rent-to-own-your-own program where the property is purchased at a steep discount (close to what the bank would loose anyway) and then the previous owner is placed in a 5-year rent-to-own arrangement.

  70. [...] Barry Ritholtz has a really good post which outlines the reasons that he doesn’t think house prices have come anywhere near a bottom. Here is his logic: • Prices: By just about every measure, Home prices on a national basis remain elevated. They are now far off their highs, but are still remain about ~15% above their historic metrics. I expect prices will continue lower for the next 2-4 quarters, if not longer, and won’t see widespread Real increases for many years after that; Indeed, I don’t expect to see nominal increases for anytime soon; [...]

  71. [...] Big Picture” at http://www.ritholtz.com and specifically read the recent post on the blog at http://www.ritholtz.com/blog/2009/07/why-housing-isnt-yet-bottoming/ it has some great arguments about why we are still headed down.  Sadly, I agree with his [...]

  72. [...] 7 Gründe, warum der US-Immobilienmarkt noch nicht einen Boden erreicht hat (The Big Picture). [...]

  73. [...] el blog The Big Picture se citan 7 razones por las que el mercado no ha tocado fondo [...]

  74. [...] 7 reasons why housing hasn’t bottomed out yet· Police Won’t Even Give Google a Break [SF [...]