On December 9, 2010, we wrote an article titled “Real Estate: The Verdict Is In”. At the time, we said the following:
“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.”
Since that time, the real estate market has experienced what we’d consider to be a recovery. This is a follow-up on the indicators from that 2010 article to see how far along we have come in the current recovery and where we might expect the market to go from here.
The first indicator is the Housing Starts of New Privately Owned Housing Units. Since our December 2010 article, the indicator has increased +124%, or more than double.
The latest trend from September 2015 to the present appears to show topping out action as the Housing Starts data seems to be running out of steam. Additionally, the dotted red line in the chart shows the Dow Theory halfway point at which either the market booms higher or stalls & stutters before declining substantially, relative to the most recent rise.
Next up is the Real Estate Loans at All Commercial Banks which has made a tremendous recovery from prior lows set in 2010. The pace of the gains in this indicator suggests that a slowdown should be expected. An equivalent period for comparison is from the 1991 low to July 1995 intermediate peak. We may be about to replicate the same action and this is worth looking out for.
The last indicator is the FHFA Housing Price Index from 1991 to the present.
What stands out about this indicator? First, the recovery has been complete. The market has achieved and exceeded the prior levels set in 2007. It is times like these when what is remaining is either a runaway boom or a bust. Worth noting is that the rate of increase has already topped out and has started to trend lower. this does not mean the indicator is going down. However, the pace of increased has slowed and could turn negative.
We think that a decline in the above mentioned indicators would be healthy at this point. It would certainly aid in our view that Roy Wenzlick’s real estate cycle theory is still intact.
