Wednesday, December 14, 2011

Aftermath of Housing Bubble: Stat Review


Updated thoughts to accompany the updated housing numbers from JPM:

Top Left
  • A 28% national “correction” from peak to trough.
  • Implied 56% total housing appreciation through the 90’s – or 4.5% per year.
  • Implied 25% total housing appreciation through the 00’s – or 2.2% per year.
  • Index growth from 1990 through 12/2011 is 90 --> 160 = 78% total housing appreciation – an annual return of 2.7% per year – the long term average.
  • This exemplified the hyperbolic appreciation that took place from the late 90’s through 2007; do not anchor yourself to the high-point (as is human nature), but to the fact that despite the volatility, there was housing appreciation in the past two decades in accordance with long-term averages.

Top Right
  • Matter of hedonics, preference changes, subjective interpretation.
  • The San Francisco rental market has skyrocketed as of late, which is a historically sound indicator that property values will follow and also increase materially as home ownership proves more financially fruitful in the long-term.

Bottom Left
  • Notice that inventories are a lagging indicator—why a secular trend must be established before developers / contractors see pickup in activity.
  • High correlation between housing sales (turnover) with prices in the above-left graph.
  • The bouncing sales line came as a result of federal intervention—first time home buyer credits, quantitative easing & operating twist in an effort to lower mortgage rates—which is still met with resistance of the capital markets naturally “correcting” prices further.

Bottom Right
  • This graph needs to be considered in context of wages, demographic shifts in age and location, and so forth.
  • This is an example of a catch-22 statistic.
  • My opinion is that this chart pairs well with the upper-right graph… that we are entering a period where home buyers are at a net advantage. For how long? We will wait for the numbers…

Have a great day.