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.”
Our call of a bottom was a bold claim at the time because of the following points against a rise in real estate:
Each of the above ideas were probably legitimate on their own and in a vacuum. However, financial markets tend to discount all of the issues that are generally known. Only a “black swan” event can take away the discounting mechanism of the markets. Thankfully, it is precisely because a “black swan” can’t be predicted that makes it out of the purview of any market analysis.
Through the passage of time, we have been able to see that our guess for a bottom in the real estate cycle was fairly close, based on the indicators presented at the time. This article will review the indicators that we cited in previous works. Finally, we’ll review the real estate cycle as described by Roy Wenzlick, which is the basis for much of our projections on this topic.
The first indicator is the Housing Starts of New Privately Owned Housing Units. Since our December 2010 article, the indicator has increased +124.44%, or more than double.
The next indicator is the Real Estate Loans at All Commercial Banks. This indicator should be clear, if banks aren’t lending then homes won’t be sold.
The next indicator plots the price of real estate for the U.S. Although there are regional differences, the general trend is the most important for assessing if a “rising tide is lifting all boats”.
Real Estate Cycle Analysis
Below we’ve included a revised and adjusted chart of Roy Wenzlick’s cycle of real estate based on the low of 2010/2011.
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