Real Estate: The Verdict Is In

On January 6, 2010, we wrote an article titled "Real Estate Bottom is Calling". At that time we indicated that, based on the cycles as presented by Roy Wenzlick along with supporting data from the Federal Reserve Bank of St. Louis, the real estate bottom was in or that it would be registered within 2010.

As we come to the close of 2010, it appears that based on the narrow scope of sources that we’ve selected, the bottom in real estate has come and gone. Below we show a chart of housing starts which appears to have registered a bottom in the month of July 2010.

In the next chart, we have the real estate loans of all commercial banks. This chart also shows that the bottom did occur in the month of April 2010.

Again, the premise of our assertion that real estate would hit bottom is primarily based on the fine research of Roy Wenzlick, author of the Real Estate Analyst. Wenzlick proposed that real estate goes through 18.3 year cycles. Such cycles can be used to estimate the approximate bottoms or tops in the market for relatively accurate timing on when to buy or sell real estate.

Below is a chart that appears to show real estate hitting bottom in 1973. If we were to added 18 years to 1973 then we’d get a bottom in the real estate market in 1991. In fact, 1991 was the last major bottom in real estate. Adding 18 years to 1991 gives us an expected bottom in 2009. As stated in our article of January 6, 2010, we play it safe by including 2008 and 2010 to our expected bottom in the real estate cycle.

If we add another 18 years to the 2010 bottom that we expect that we’ve passed, we arrive at the year 2028 as the next bottom. This coincides with our inflation cycle peak that is expected from 2028 to 2030 (see right hand column). We arrived at our inflation cycle from the work of Dewey and Dakin’s book Cycles, The Science of Prediction. In their book, written in 1947, Dewey and Dakin proposed that the next peak in wholesale prices would occur in 1979 and the next trough would occur in 2006. The 1979 target was off by one year while the 2006 target is off by 2 or 3 years.

Source: Edward Dewey and Edwin Dakin. Cycles, Science of Prediction. 1947.

Despite the discrepencies in the 2006 estimate for wholesale prices, the stage has been set for some interesting times in the coming years. Based on the indicated sources above, we feel that real estate has a six to nine year stretch of rising prices or "trading" in a range and decreased foreclosures.