Calculated Risk: The housing bottom (the first one at least) is here

Regular readers know that I closely follow the blog Calculated Risk. Bill McBride does an amazing job of presenting the latest economic data and releases with no spin. When he takes the time to analyze the data he is presenting, it’s always in a thoughtful, fact-based, concise way.

I hope more online commentators learn from his example. Bloggers and news reporters don’t necessarily need to be flashy; they can reach huge readerships if they present trustworthy information and prove over time that they know what they’re talking about.

Check out CR’s two posts today: The Housing Bottom is Here and Housing: The Two Bottoms

When most Americans talk about the housing bottom, they’re talking about home prices. We have not seen that bottom yet, although CR thinks national home price declines might end as soon as March, at least for nominal prices. Even if nominal prices bottom in March, real prices — those adjusted for inflation — might not bottom for many months or even years.

But, in terms of the broader economy, that second bottom is less important than the first. From CR:

There have been some recent articles arguing the “housing bottom is nowhere in sight”. That isn’t my view.

First there are two bottoms for housing. The first is for new home sales, housing starts and residential investment. The second bottom is for prices. Sometimes these bottoms can happen years apart.

For the economy and jobs, the bottom for housing starts and new home sales is more important than the bottom for prices. However individual homeowners and potential home buyers are naturally more interested in prices. So when we discuss a “bottom” for housing, we need to be clear on what we mean.

He presents this graph to show how residential investment, new home sales, and housing starts move together:

All of those measures seem to have bottomed (it would be hard to imagine them going much lower even if there’s a sudden economic slowdown or contraction). Note the false bottoms in recent years: those are tied directly to the expiration dates of the homebuyer tax credits, a horrible program that merely delayed the inevitable.

I fear that CR might be too optimistic on home prices. Given the relatively high levels of listed inventory nationally and the large shadow inventory, we could see nominal prices continue to fall far beyond this spring. Real (inflation-adjusted) home prices would be unlikely to bottom for a few years, but, as CR notes, most homeowners are more interested in nominal prices than real prices.

But even if national nominal home prices bottom this spring, many areas burdened with higher than average inventories will inevitably see continued declines.