Housing Market Analysis (part one)

Last November, I wrote the following:

Many of my clients (those of them who listen to the news, read newspapers, sit around the water cooler at work, or breathe for that matter) have all asked me about our current economy and how that affects their decision to buy a home. Yes, as I wrote several months ago, we are now formally in a recession. Several analysts today forecasted that unemployment rates may creep near 9% ( a level not seen since the early 80's recession).

But, what does this mean to you, a potential homebuyer?

To answer this question we have to look at history for the clues. Here are some major points to remember:

• Residential investment contributes most to weakness before recessions. In six of the last 10 recessions, residential investment was the greatest contributor to weakness prior to the recessions. Only twice did residential investment not contribute significantly to weakness prior to the recession in 1953 and 2001.
• Weakness in housing directly correlates to a loss of jobs in construction, real estate, and finance.
• Housing is very sluggish in terms of price adjustments due to supply/demand constraints. ie, until demand for homes strengthens prices will stay low. Once demand picks up prices will follow albeit not immediately but an upward cycle will begin.
• Over the last six recessions housing bottomed 2 to 9 months before the end of the recession

HOUSING WILL BE A STIMULUS TO LEAD US OUT OF THE RECESSION!!! If you take a look at the charts below you will find that our economy depends on housing and as housing starts increase/decline so does our macro economy. If you are thinking about buying a home at the bottom of the market you may not have much more time to act. The last six recessions have started after housing starts peaked and have ended several months after housing starts have bottomed.

Recessionary Periods

Jan. 1969- Nov. 1970

Nov.1973- Mar. 1975

Jan. 1980- June 1908

Jun. 1981- Nov. 1982

Mar. 2001-Nov. 2001