Steve, As we have discussed at length, I don’t share your optimism. Ardell at Rain City Guide said very well what I have been trying to say:

Think of it this way, retail sales are expected to be higher in November and December than in February. They may not go up as much as expected, and that is not good. But if sales in November are lower than in February, that’s really bad. So up vs. down is NOT the barometer…it is up when expected to be up, down when expected to be down…and then it is all a matter of degree.

That’s been my point. The movement we are seeing in prices and volume is meaningless if the seasonal trends have been turned on their heads. All this signifies is volatility and uncertainty.

Kris – Someone once said, “Those who ignore history are destined to repeat it,” or something along those lines. First of all, my post was not what I would call an optimistic opinion. It simply revealed the raw numbers as they are. Almost all trend lines and indicators point to a bottom in the formation process. Just like it took several years to get us into this mess, the recovery does not occur on a given day. But if one looks objectively at the primary indicators, you can’t help but to see momentum building toward market stabilization -

Sales: Up huge.

Foreclosures: The rate/pace of foreclosures is decreasing, not increasing, as it has for several years.

Inventory: Shrinking.

Market Action: Multiple offers on many entry level homes. Base is quickly forming.

Sales Prices: Huge downward move year-to-year. If not capitulation, it sure feels like it.

Interest Rates: Low, low, low, allowing more people to purchase a home, not to mention the tidal wave refinancing that is occurring as we speak. This will stave off further potential foreclosure problems.

Affordability Index: Up over 100% from last year.

This is not me being Pollyanna. These are the facts. Ignore them at your own risk.

OK, Facts-Man. As soon as I am finished with my morning meeting, I will prepare to beat you upside the head with some fun charts. But, first, a parting shot.

>Sales: Up huge.

>Foreclosures: The rate/pace of foreclosures is decreasing, not increasing, as it has for several years.

The two are not unrelated. Sales are up in part because of the Black Friday sale which has been going on in the short/foreclosure market. How much of this is artificial, and how will the number of sales be affected when the fire-sale pool dries up?

I am not saying that we aren’t moving through this; we are. I just don’t think we can point to the Fall numbers as an indication that we will find market reversal in our stockings this year.

I’m not using Fall numbers in a vacuum. These are trend lines that have been roughly forming over the past year. Foreclosures and sales not related?? Of course they are. The “artificial” argument doesn’t hold water. You could have made the same case when the market was on its way up, too. Buyers who wanted to buy, were qualified to buy, but waited and never did. It is what it is. As foreclosure and short sales become comp’s it’s harder and harder for listing agents to make the anomaly argument. Buyers don’t care. These comp’s are adversely affecting value in the “regular” market, so there is a direct connection. That’s one of the reasons I think the charts are clearly illustrating a bottom in the making right now. How long it will take to get from here to full stabilization (2 months? 6 months?) is really the only question.

[...] Why There is Hope for the Future — The San Diego Home Blog [...]

Wow. You guys debate yourselves on your site. I like that. I just posted a link to this story on my site as I see some very telling numbers in the piece. Primarily you have median prices falling to the point where it actually makes real sense to purchase and now that is does, those who sat on the sidelines are getting into the game.

It will take us some time to get to that point here in Vancouver, BC, but I know plenty of people who are eagerly waiting for it to come. As I said on my site, you all have been in a housing recession for about three years while we have been in one for seven months… though we are playing a pretty quick game of catch-up it seems.

Love the back and forth. Almost like I’m in the Berg kitchen.

Steve, what is this, bottom-call #276?

Jakob – Okay, I haven’t been that bad. I did underestimate the magnitude of the price depreciation we have been through here in SD (most others did, too). The Bubbleheads were right about that, as much as it pains me to admit it. But since it is unprecendented, I would hope you could cut me some slack. And, for the record, I am not actually calling a bottom now. I simply ask the question with the implication that it could be months away. I really don’t think it’s years…

Steve, props for admitting you were too bullish in the last few years. My 2 cents is we are still years from a bottom. The increasing numbers of higher-level job losses are not a good sign. As people lose income they spend less and it’s a self-reinforcing cycle that unravels the entire service industry ponzi scheme causing more job losses. It is going to be years before we see anything positive. But in many areas there are already amazing deals. I found a deal myself in Lakeside (tho it’s a been a bear closing). I’m catching a knife because I want to own and prices are down far enough for me in East County, even tho I know there will be more great deals in the future, I feel like getting started on a new project.

BTW, thanks for the blog posts and this forum for discussion.

Jakob – Agreed that this latest shoe to drop is going to prolong the pain. What I am seeing in the field is that there are two different markets happening simultaneously. For example, in the I-15 Corridor, the market for entry level homes (now in the $375k – $500k range) is on fire. We have several buyers in this segment and are running into multiple offers all over the place. Many are short sales and bank-owned, but there is obviously a strong perception of value since these homes are selling quickly and attracting multiple buyers. IMHO, in order to get to a point of market stability, it has to happen from the ground up…starter homes. And that seems to be happening. Although I admit that the base has not yet formed, the characteristics of the market place suggest there is a bottom TRYING to form. So, while I have been humbled and have learned not to be so bullish, I certainly hope that your crystal ball is a little on the conservative side.

Please also know that Kris and I greatly appreciate the ideas and the dialogue you and other commenters provide for us and others here.

Uh oh! I’m must be in trouble. The last comment from Kris was many hours ago and I haven’t seen her most of the day. Which means she is probably sequestered and preparing a monster comment about how wrong I am. This is not good…

[...] or “Why I think Steve is being silly.” Do not think for a minute that this post is not going to get me in some really deep [...]

Nothing, and I mean NOTHING – not 4.5% mortgage rates, government-induced principal reductions, foreclosure moratoriums, etc. etc. etc. – is going to stop this housing market’s date with destiny: the mean-reverting trends of price-to-income and price-to-rent. You can dance around the issue all day long, but it won’t change this fact. And that’s still another 15%-20% below where we are. And that’s if this is the only bubble in the history of mankind not to go BELOW trend after correcting. As Jeremy Grantham pointed out recently, now including the recent stock market crash, every single bubble of the last 100 years (all 29 of them) reverted back to its fundamental trend. 100%. The sooner you accept that and act accordingly, the better off you’ll be.

Also, one of the main reasons inventories may appear to be low in some areas is that foreclosures have practically been outlawed. Once the foreclosures start up again, bang, boatloads more inventory. And if these people are able to stay in their houses, the houses still have to be revalued based on the new loan balance. There’s no free lunch, folks. Meaningful price declines are still ahead of us for the next 18 months.

Brad -

“The sooner you accept that and act accordingly, the better off you will be.”

Meaning what? If you have a job transfer and need to sell, don’t? An expanding family that needs more space now and wants to own a home for 5-10 years or longer, should rent a larger home for the next 2-3 years? A death or divorce occurs. A marriage occurs. None of these events should result in a home sale or purchase because that may not be acting accordingly?

We advise every buyer of the current market trends, as we always have. How long this current trend continues is a matter of pure speculation. It could be six months or as you suggest, longer. But I think it’s wrong to condemn a buyer who wants to purchase a home for many good and personal reasons with long term ownership goals. Similarly, there are many reasons an owner may want or need to sell, even absent purely financial reasons.

Steve,

There are plenty of good non-financial reasons to buy a house even if you think its value will decline in the short term. Nothing in my post contradicts this position. When I say, “act accordingly,” I mean just that. If you’re on the sidelines and can wait things out, it’s probably better to do so. If you can’t wait on the sidelines because you have other considerations, just be prepared to accept a loss in the short term. Your interpretation of “act accordingly” as always meaning “wait to buy until the bottom is at hand” is incorrect.

Brad – Thanks for the clarification.