The Failed Track Record of Housing Analysts
One other thing about the dynamic of withering green shoots as the economy moves into the summer months. Obviously that optimism has runoff into other areas of the economy, and specifically housing. We’re in a moment where virtually every housing analyst in the country is heavily, heavily invested in “calling the bottom” for housing, saying that prices will not fall anymore, that construction will make a positive contribution to growth this year, that housing is in general ready for a bounce back.
When you read these reports, and the associated statistical analysis that frequently foregrounds good news and backgrounds bad news, you have to take into account Barry Ritholtz’ big list. In fact, analysts have been calling the bottom for housing since 2006.
Many casual observers of Housing (along with a few pros) fail to understand the difference between monthly seasonality and actual improvement. This first came up in March 2008, when the WSJ screwed the pooch on February 2008 existing home sales, incorrectly reported Wave of Foreclosures Drives Prices Lower, Lures Buyers. Actual EHS were down 23.8% year over year. The Journal was suckered by how the NAR spinmeisters shaped the narrative, emphasizing monthly data (at least from March to September).
These bad calls reoccur every Spring, as the data begins its annual improvement. I use the phrase Perennially Wrong Bottom Callers and its acronym PWBC™ (I may have to trademark that!).
This year, the unusually mild Winter threw the perennially wrong bottom callers into a tizzy. The January and February data gave them the early false belief that the bottom was here. Subsequent data demonstrated that it wasn’t.
Exactly how often have the PWBCs been making their really really bad housing bottom calls? As is often the case with equities, from the peak of the market all the way down. Searching for terms like “Bottom, turnaround stability recovery” along with “Real Estate Housing Homes Residential” reveals a broad and deep reservoir of PWBCs.
The truth is that there is so much data associated with housing, so many competing factors, so many different indices, and so much margin for error (up to 15% in the case of Census reports), that it’s easy to write your narrative in just about any fashion you want. In particular, when you have outlets like the National Association of Realtors, whose members depend on a healthy housing market and thus want good spin about this being a good time to buy, it’s worth being extremely skeptical of any claim they make. This is actually true of far more analysts in the housing space than not.
Just as an example, you can read an apparent increase in short sales as a positive for housing, because it clears out a lot of inventory, or a negative, because it depresses prices and lowers property values. Is it better for the market than foreclosures? Probably. Is it better that homeowners who could probably stay in the home with a modification are getting chased out through a short sale? No. All of these factors are connected, so isolating any one only provides a false narrative.
If you want to read the true pessimistic take, try Keith Jurow. I would add that most housing analysis is based on the idea that there just HAVE to be a lot of buyers flooding in soon because of population increases, which doesn’t take into account declining wages, high unemployment and the growing cultural tendency to either rent or double up on housing, i.e. kids moving back in with parents, or multi-family units.
And virtually no analyst wants to grasp with the serious problems of title and how that will necessarily back up the housing recovery, if substantial numbers of homes are deemed unsalable because no owner can be proven.
The truth between another total collapse of housing and a big recovery may be somewhere in the middle. You have to fight your way through a lot of spin to get the right answer. It’s difficult to really know. But looking at the track record is at least somewhat important.