Housing: The 90’s Revisited and A Look at Today $$

Here is my appearance on Wall St. Media yesterday on the subject (housing comes in about 1/2 way though)

Below is the Case-Shiller housing data going back to Jan. 1987.  It is reflective of the housing markets for Boston, New York, LA, San Diego, San Francisco and the 10 City Composite. I cannot use today’s 20 city data because back in the early 90’s only the 10 majors went into it. 

I have taken the liberty of highlighting in yellow both the peaks of the various markets and then again when price finally returned to those peaks. You’ll notice both for the cities and the overall composite, the basic take-away is that housing peaked in 1990 and it took until 1997 for prices to return to those levels.

Here is the bad news and yes, it gets worse than waiting the assumed 7 years for your home to be worth what it was in the spring of 2006, the most recent market peak (purple highlight). Notice the degree of decline in the 1990’s?  Nationally peak to trough it was basically 8%-9% and in the select cities it averaged about 15%. 

Where are we now? Over 30% Nationally and as much as 40% in the major cities with more downside in store. If it took 7 years to return from far milder events in the 1990’s than the ones currently being experienced, do we really think housing will return from this before 2013 (7 years peak to peak as in the 90’s)? Do we really?

Still using the most recent housing bust as a guide we find that for the most part the bottoms in all the markets and Nationally came 4-6 years after the peak. Translated to today that again means we will not actually bottom until the Spring 2010-2012.  Another year of falling prices, at least.

Open spreadhseet in another window

One also has to remember for the majority of the 1990’s we were not facing a recession anywhere near as severe as we are today.  Unemployment at its worst was 5% to 6%, roughly 1/2 of what we ought to see before this recession is over. According to the Mortage Bankers Association nationally “the percentage of loans in the foreclosure process at the end of the second quarter was 2.75 percent, an increase of 28 basis points from the first quarter of 2008 and 135 basis points from one year ago.” Oh, in the 1990’s? That percentage peaked at .35% (read it right, “point” 35%, not 35%).

Those facts alone, even if we disregard the severity of the price fall in housing would tend to force most folks to push the bottom of the current situation out a bit further. When you add the wealth destruction that has happened to healthy homeowners who may have been looking to scoop a bargain but no longer have equity to roll, we are further suppressing demand.

Disclosure (“none” means no position):