“Has Your Housing Market Hit Bottom?”
and Other Disingenuous Questions
Making money in the stock market is easy: only buy stocks that go up. If they don’t go up, don’t buy ’em.
One of my biggest peeves as a Realtor is disingenuous articles that suggest that calling housing market tops and bottoms — and predicting future prices — is amenable to straightforward (if not obvious) analysis (see also, “So, is it Bottoming?“).
Exhibit A would be this recent article in The Wall Street Journal:
Spotting the factors that have helped [out-performing housing markets] get by may allow all homeowners to better gauge what’s going on where they live”and what the future may hold for their home’s value.
–David Crook, “How to Tell if Your Housing Market Has Hit Bottom“; The Wall Street Journal (June 20 , 2011)
So, what three variables does . . . uhh, Mr. Crook focus on?
Employment, rents, and foreclosures — certainly, all relevant to determining home prices.
Dependent vs. Independent Variables
The problem is that each of these variables is dependent, not independent — not to mention interrelated with the other two.
Put it this way: just because you know that foreclosures are currently rising doesn’t mean that they’ll continue to rise; in fact, forecasting foreclosures is notoriously difficult in its own right (just look at the trail of egregiously wrong forecasts by economists the last five years or so).
Ditto for (un)employment and rents.
The entire exercise reminds me of explaining to a child why the sky is blue.
“Because the atmosphere refracts blue light differently than red or green light,” you learnedly say (natch).
“Why does it do that?,” the child then asks.
“Because blue, red, and green have different wavelengths, ” you patiently reply.
“And why do they have different wavelengths, ” the curious child persists.
“Umm . . . go ask your Mother!,” you inevitably snap.