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August 7th, 2012 by Joel Cone
The Wall Street Journal and The New York Times both published articles in the past six weeks stating that the housing market has reached a bottom. But hold on for just a minute… It seems that not everyone believes it.
Even Yale professor Robert Shiller, co-founder of the S&P/Case-Shiller Home Price Index, admits to being a little bit skeptical. In fact, he even told Fox Business last week that he’s not entirely convinced that a bottom has been reached yet.
“It’s possible, but I’m not confident. This is partly seasonal,” Shiller said regarding the recent rise in home prices that have been documented over the past few months.
Only one thing is certain when it comes to economics: there is no certainty as to when an economic cycle has bottomed out until it’s already past. This is especially true in real estate — one of the biggest driving forces behind our national economy.
Everybody wants to be the one who can “time” the bottom of the market so they can say that they saw it coming, and they were smart enough to buy at the bottom of the market.
The problem is — and always has been — that real estate is a lagging indicator so by the time the bottom has been officially declared, all those bottom feeders have already missed it. Too bad! But you can still get a great real estate deal even after the market starts on its way back up through buying short sales and bank-owned properties (REOs). [Buy them to rehab yourself, or buy them as turnkey investment properties.]
An economist by trade, Shiller’s skepticism is founded on a variety of factors, particularly the “large overhang of homes that are either in foreclosure or near it,” notes the Wall Street Journal. “If those homes flood the market, it could push prices down even further.”
Although there is a case to be made for optimism because momentum seems to be leaning in favor of increasing home prices, high unemployment nationally is another reason Shiller is not entirely sold on the idea yet.
He does see a handful of markets showing signs of possible market bubbles (San Francisco and Phoenix in particular because of the speculative mindset of those who have been buying in those markets). Chicago and Atlanta as well, due to a suggested decline in recent foreclosure activity.
Momentum may be the most determining factor when it comes to the real estate market’s eventual recovery, but until Shiller sees further sustainability — at least through the fall and next spring — he is not ready to jump on the recovery bandwagon.
Personally, I agree with Dr. Shiller. I want more substantive, verifiable evidence before I take anyone’s word that prices have completely bottomed out.
What do you think? Are we primed for a recovery now? Or is this just a lot of public relations hype to try and get buyers off the fence?
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