In 2008, Barron’s published a cover story by Jonathan Laing calling a housing bottom titled “Bottom’s Up: This Real-Estate Rout May Be Short-Lived.

It was not just that it was wrong. Rather, it was how it got the bottom call wrong: The analytical process was flawed, as it ignored data, misunderstood and misstated history, with the author engaging in all manner of wishful thinking. It was not at all what one would call rigorous. This was surprising, as the usual skepticism Barron’s was renown for was nowhere to be seen.

The net result of that flawed process was a housing bottom call less than 18% from the top. Ultimately, the U.S. residential real estate market lost twice that amount, falling 35%, with specific bubble areas dropping 40, 50 even 60%. All told, a disastrously premature bottom call. As a comparison, my own housing analysis, made in 2005 and repeated in January 2008, was that US housing could fall 25-35%. It was based on simple historical prices, credit bubbles, and (eventually) included Reinhart and Rogoff data.

There were other bullish real estate articles in Barron’s during the slide, and eventually, they got it right: In March, 2012, the article Ready to Rebound (by the same author), struck a similarly bullish tone. Kudos to Jonathan Laing and Barron’s, as they were correct last March and again repeating the call in September 2012 (Happy at Last).

Meantime, I remained skeptical of the recovery as little more than Fed driven and manipulated bank bailouts. Regardless, home prices rose appreciably, gaining ~8% since then. I publicly admitted my error in my annual mea culpas (here and here).

Now here’s where things get interesting: In this weekend’s Barron’s, there was a bit of chest pounding about their Housing call: As We Predicted, Home Prices Are Ascending:

“Barron’s didn’t have much company a year ago when we predicted in a cover story (Ready to Rebound, March 19, 2012) that the six-year collapse in home prices was just about over. Our call that the turn in the market would come in the spring of 2013, “if not before,” drew derision from many quarters, including influential market pundit Barry Ritholtz.

Then we doubled down on our thesis in another cover story (“Happy at Last,” Sept. 10) that delineated early signs of rebounding home prices, pointing to slowly rising month-over-month increases, if not the sturdier indicators of substantial year-over-year price gains” (emphasis added)

To which I call foul.

Noticeably omitted from this article was any mention of that 2008 bottom call. Prices remain far far below their original call.

Doubling down? This was more of a tripling down.

Despite years of ZIRP, bailouts, QE, foreclosure abatements, bank settlements, HAMP, subsidies, extended delinquencies, non foreclosure-defaults, and dumping bad mortgages on GSEs, etc.* Home prices are rising, inventory is tight, unemployment is falling, rates are near record lows. Given all of the above, it would be a huge cause for concern if sales and prices were not going up.

Hence, we are reminded that if one make the same call repeatedly over the course of 5 years — one will, like the proverbial broken watch, eventually get it right. The problem with broken clock calls is they are useless to investors.

More on this in the future . . .

 

 

 

 

Previously:
How Far Might Housing Prices Fall? (January 3rd, 2008)

Why Barron’s Housing Cover Is So Terribly Wrong (July 12th, 2008)

Cheapest Homes in 40 Years? Not Even Close  (April 25th, 2011)

Barron’s Cover Calls Housing Bottom (Yet Again)  (September 10th, 2012)

 

 

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* I am also compelled to point out the ill advised reliance of National Association of Realtors Housing Affordability Index (See NAR Housing Affordability Index is Worthless). It is a work of such breathtaking cheerleading and is so deeply flawed that it found homes were “unaffordable” but one month during the entire 2001-06 boom which preceded the collapse.

Category: Financial Press, Real Estate, Really, really bad calls

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.

6 Responses to “Housing Score: Barron's 1, Ritholtz 2”

  1. BennyProfane says:

    How could the market be so frothy when over 20% of mortgage holders are underwater? How could the market be accelerating with such high unemployment and the collective net worth of Americans so damaged from the last recession? How could the market be marching well beyond income to price ratios as Americans income levels drop? How could it be going up when an entire generation of young adults are entering adulthood/first home buying territory with a collective trillion dollars in student debt, at the same time an overhoused older generation is entering the end game with hardly any savings and high debt loads, relative to older people in the past? Something is very wrong, and, I feel as though I’m witnessing something that again, will not end well in the near future.

  2. flocktard says:

    I saw this too, and Barron’s had plenty of company in March of 2012 as far as a housing rebound. Spotty? Yes. Subject to widely varying local market conditions? Surely. But if anyone wants to look at this chart, they had already missed the big move in housing stocks, which I presume would be the point of reading the article:

    http://finance.yahoo.com/echarts?s=DHI+Interactive#symbol=dhi;range=2y;compare=len+phm;indicator=volume;charttype=area;crosshair=on;ohlcvalues=0;logscale=off;source=undefined;

    Given all sorts of factors, including mortgage rates, a somewhat improving economy, and yes, even anecdotal evidence from people in the business, it was clear the worst was well behind us, and the detritus of the bubble was being cleared, setting up a market that had plenty of room to run.

    One thing Barron’s did get right was Barry’s influence. Compare the number of followers in their respective twitter feeds, and it is clear that Barron’s has become a useless anachronism.

  3. gordo365 says:

    @benny – I agree. One thing I’ve learned from reading this site is that the housing market is really a ladder. For 1st time home buyer to buy up to bigger home and move up the ladder when they have kids, they need to sell to new batch of 1st time home buyers. etc up the chain all the way to retirees downsizing to buy patio home or 2 bedroom condo etc.

    If any wrung on the ladder is broken – the whole market is broken.

    I’m not an expert in housing market/ladder – but it doesn’t feel “unbroken” at this point.

  4. nicoacademia says:

    should check out the history of Barron’s coverage of Apple before the great fall.
    it just kept coming up.
    Amazing.
    the score wouldn’t be so nice.

  5. Using annual median data, the Realty Bubbles Monitor has found American home prices fell 25% (2011) from the 2006 peak. The bubble peak was actually 2005 using the variance from its price/income trend (52%). While it appeared the bottom was 2009 (7%), the variance actually did not attain equilibrium ’til 2011. Existing Homes were overpriced by 1% in February. New Homes fell 13% (2009)after being 26% above trend, achieved equilibrium in 2010 and are today 7% overpriced.

    BTW, RBM has an Affordability module which has proved useless over the years. It gauges the fair value of the median Existing Home is $479,000 today.

    RBM charts: http://trendlines.ca/free/economics/RealtyBubblesMonitor/RealtyBubblesMonitor.htm

  6. rj chicago says:

    Barry:
    Have you seen anything from Mark Hanson of late? I dial up his website from time to time and seems there are no new ‘general’ postings on his blog tab.
    Any thoughts?