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We are currently seeing bullish indicators regarding housing demand
coupled with bearish indicators regarding housing prices. Let’s take a look at the past relationship between house demand and house prices and see what it suggests for the future in real estate prices. Words: 450
So says Katchum (http://katchum.blogspot.ca) in edited excerpts from his article* as posted on Seeking Alpha.
Lorimer Wilson, editor of www.munKNEE.com (Your Key to Making Money!), has edited the article below for length and clarity – see Editor’s Note at the bottom of the page. This, and the preceding paragraph, must be included in any article re-posting to avoid copyright infringement.
Katchum goes on to say (paraphrased in large measure), in part:
The Housing Market Index (HMI), published by Wells Fargo, is an index of over 300 home builders which shows the demand for new homes. Chart 1 below, of the HMI since 1985 onwards, shows that demand bottomed in 2009 and has recently risen to the highest level since 2007. The index runs from 0-100, however, so the current demand level shown is still much below the average throughout those years.
click to enlarge images
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| Chart 1: Housing Market Index |
The Case-Shiller Index in chart 2 below shows that home prices in the U.S. have hit an all-time low – down 2.6% in March – since the economic crisis hit in 2008.
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| Chart 2: Case-Shiller Index |
Comparing the 2 Indices Historically
Comparing both charts above we can see that in the 2005-07 period…the Housing Market Index fell first – in 2005-2006 – indicating demand was going down for new houses and then – in 2007 – the Case-Shiller Index declined indicating that prices followed down. From that we can conclude that, basically, demand goes down first, after which housing prices fall with a delay of one to two years. The same can be said during the year 1989-91 period when the Housing Market Index started to fall in 1988-1989, after which the Case-Shiller Index fell in 1991.
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When Can We Expect Prices to Rise?
Looking into the future, based on the above co-relationship, do we have a bullish or bearish scenario going forward? Theoretically, the Housing Market Index is the primary indicator and it is going up right now, so demand is going up for new homes. That being the case, we should expect the Case-Shiller Index (that is, prices) to go up with a delay of 1-2 years or sometime between 2013 and 2014….
*http://seekingalpha.com/article/633321-case-shiller-index-vs-housing-market-index-has-real-estate-bottomed-out (To access the above article please copy the URL and paste it into your browser.)
Editor’s Note: The above article may have been edited ([ ]), abridged (…), and reformatted (including the title, some sub-titles and bold/italics emphases) for the sake of clarity and brevity to ensure a fast and easy read. The article’s views and conclusions are unaltered and no personal comments have been included to maintain the integrity of the original article
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