Has Housing Bottomed? Here's How to Tell

07-21-2011 • OfTwoMinds.com/blog

Housing has been propped up by Central State intervention. As that ends, Phase II of the retrace to pre-bubble valuations is at hand. Has housing bottomed? Here is the sure-fire way to tell: Stories titled "Has housing bottomed? Here's how to tell" have vanished for lack of interest. The absence of stories about the bottom in housing will mark the final nadir, because the real bottom can only be reached when everyone has abandoned housing as a pathway to easy money. Only when the public and investor class alike have completely lost interest in real estate as a "sure-fire" investment can the real trough be reached. This destruction of long-held habits and beliefs takes a long time. The closest analogy might be the stock market in the last secular Bear market. Stocks topped out in 1966, though the economy lumbered on until 1969 before faltering. Stocks then meandered for 13 years of stagflation, losing 66% of their inflation adjusted value in 1966 by 1982. People gave up on stocks. I call this loss of faith "when belief in the system fades:" note how household participation in stocks topped out in 1969, three years after the peak in the market. Participants clung to their belief in stocks for about four years after 1969, at which point participation cratered as they finally abandoned their faith in a "permanent Bull market." Household participation fell by two-thirds and remained low for years.