Real Estate 2013: What Happened To The Bottom?

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Many real estate agents, analysts and buyers are asking the same question: What the heck happened to the bottom?  Weren’t we supposed level off before surging up again?  Doesn’t this portend to another bubble that is destined to burst all over us?  To this I say, we had a bottom; a two year bounce along the bottom, you just didn’t notice it.  Huh, you say?

Let me explain…

Regardless of where you get your numbers, Zillow, RealtyTrac, Core Logic, Trulia, Redfin or Case-Shiller, all numbers point to the same thing: the bottom began in spring of 2009.  The stock market had just gone into freefall, landing around 6500 on march 9, 2009.  Real estate was doing the same.  According to Case-Shiller’s March 2009 reading, San Francisco was down 30% since the peak and Phoenix nearly 54%.  However, those bottoms were not called bottom… but why?

It’s the old “forest for the trees thing” actually.  We were so crushed by month after month after month of bad housing data, that we couldn’t see the bottom right before us.  If you recall, in the midst of the property value freefall, 2009 also brought us the First Time Buyer’s Tax Credit.  Up to $10,000 of tax credit to be precise.  Because the housing tax credit started in 2009 and ended in April of 2010, with closings extended to October 2010, we missed the bottom because the tax credit caused prices to actually go up for a few months in 2010.  In other words, had we not had the tax credit, prices would have either continued to drop further (the Dem’s belief) or would have leveled due to natural economic forces (the GOP’s belief) but eventually we would have seen what a bottom looks like: a valley, that is, the drop, a flat bit, (the bottom) and then the other side of the valley, (the rise.)  But because the tax credit artificially boosted market activity in 2010, it didn’t look like a valley or a bottom at all, rather it looked a valley, a hill and another valley.  And since it appeared as if we had improved only to precipitously drop again, most concluded that it was one large, continuous freefall, when in fact it was actually a bottom.  Shave off the artificial reading of 2010 and you get a solid 2 year bottoming from spring 2009 to spring 2011.  That’s right, a nice, normal  valley.

I didn’t realize this myself until this yesterday while showing an investor property. He asked me, “What happened to the bottom?  We never had a bottom, just a ‘V'”  I guess I never really thought too much about the bottom, I only focused on the rise, but when he asked, I responded with, “Well the tax credit of 2010 hid the bottom, but if you just slice the brief bump from the credit, you get a stable, two year bottom.”  And with that, I said, saw it plain as day and had to come home and write about it.  Can’t see the forest for the trees… I’m not sure who said that first, but I guess some things never change.