When will housing prices see the final bottom?
May 31, 2011 S&P case shiller index released today showing that national home prices were declined by 4.2% in Q1 2011. Composite-20 city index (Seasonably adjusted data) shows that the index set a new low for 2011 at 141.20. This is closer to April 2009 level and July 2003 levels.
It is very much hard to agree the housing prices have bottomed or we are closer to bottom as Fed is still keeping the interest rate near zero for close to two and half years. If we need to see the final bottom, then we have to wait for when Fed starting to raise its interest rate. Increasing the rate further disappoint home buyers and dampen the demand for buying homes. With increased number of panic sellers, we would see the final bottom only after Fed is raising rates. Note that it would be a one day and it is bottoming process and might take couple of months to see the final bottom.
Housing Prices to bottom in end of 2012?
Historically if you compare to the recent past which is after 2000, fed was able to keep the interest rate less than 2% for 3 years. Currently the near zero percent interest rate is there since December 2008. If we count 3 years from December 2008, that would be December 2011. Chances are higher that Fed may start rising the interest rate from near zero percent from end of this year.
Data Sources:
http://www.federalreserve.gov/monetarypolicy/openmarket.htm
http://www.standardandpoors.com/indices/main/en/us
Note that even Feb started rising interest rate from Nov 2004, housing prices continue to climb for 18 months. Now it would be reverse scenario. Housing prices will continue to collapse when the Fed started rising the rate once again. Once Fed is increasing the rate, both housing and credit bubble-burst will see the final bottom after 12-18 months. This is a high level estimate and chances are higher the housing prices might see the final bottom before the presidential election of 2012.
Posted on May 31, 2011
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