Magic 8-Ball – The Perfect Housing Predictor

I keep a magic 8-ball available on my desk to assist with all important decisions in my life.  I gave up on the mirror on the wall after some poor judgment calls by the mirror led to divorce.

Lately, I’ve been getting some “look-sees” at good rehab deals.  So yesterday, before I plopped down 157G’s, I consulted my trusted adviser, “Mr. 8-Ball, where are we in this whole housing downturn?  Will housing prices continue to fall?  When will we start climbing back from the abyss?”

I’ll give you Mr. 8-Ball’s answer at the end but, in the meantime, wouldn’t it be nice to have a quick, easy way to see the market bottom?

Well, don’t miss this…

As I was browsing some housing blogs, I came across a neat little post called “Calculating Risk In Your Investments.”  It’s an easy read and contains simple, concise ideas and some cool charts about the current state of the market.  Read it and eyeball the 3 simple charts:

http://www.calculatedriskblog.com/2010/10/real-house-prices-price-to-rent-ratio.html

Do you see what I see?  I see a few very interesting things:

First, experts analyzing the data believe that housing prices are still a bit high, and all expect some price drop into Q4 2010 and Q1 2011.  But take a happy note – none of these experts or charts suggests a severe drop.

Even more interesting – notice the severe price downturn between ’06 – ’09, and then the abrupt stop, leveling off, and gradual increase.  Could this be clear evidence that the worst is over?

Now, most interesting – take a ruler or any other straight edge and chart a line on the first chart (“House Prices August 2010”) between the beginning of the blue line at Jan. ’83  and the ending point for the same blue line, January, 2011.  Hmmmm…

If you remove that big “bump” between 2001-2008, it looks like a pretty straight line, doesn’t it?  In other words, could we now be back close to “median” prices?  If that’s the case, a severe drop seems unlikely.

Times are uncertain, and we all know some catastrophic economic event could be lurking out there, waiting to send us into a downward spiral and steal more equity from our projects.  But personally, after seeing this, I feel better about my investing.  Maybe I’m overly optimistic, but it makes me feel like that next rehab I’m looking to buy may be insulated from any disastrous downturns?  How about you?

On another note, I saw a good rebuttal to my rant from last week about this silly foreclosure moratorium due to robo-signing.  Check it out:

http://money.cnn.com/2010/10/25/news/economy/foreclosures_big_banks.fortune/index.htm

Let’s see him pay $50,000.00 in legal fees to defend a “technicality” lawsuit and see how he feels after that.  I’ve done it.  But it’s always good to look at the other side of things.

‘Til next time, J.

P.S.  The answer was, “All signs point to yes.”  WTF, 8-Ball?  Can’t you just give me a freakin’ answer one time that makes sense?  Where’s that mirror…