Is Housing Bottoming?

"Up on housing project hill, it is either fortune or fame.  You must pick one or the other but neither one of them are to be what they claim." - Bob Dylan

Trying to pick a bottom in any market is a futile task and one that has destroyed many a trader.  So it is with housing however as I have repeatedly mentioned throughout my blog posts, a recovery in housing will mark a proper recovery in the economy.  So if that is the case I spend a fair amount of time trying to work out whether we are turning the corner in housing.

The most recent Case Shiller Index of United States housing showed a moderate improvement in the price of housing through the nation of 1.3 percent in April (the data takes some time to reach the market).  In recent articles I have read it appears that Arizona has experienced a sudden resurgence in housing prices and contractors have been caught off guard as the number of requests to build or renovate housing has exceeded their expectations.  In fact there is actually a shortage of skilled labor in Arizona and wages in the construction industry are rising.  Now Arizona is a unique case in that it implemented some very stringent immigration controls (that have subsequently been reversed by the White House) but it has done a lot to scare off a number of illegal skilled workers and this could be showing up in the low level of skilled labor in that state but the news is encouraging.

Taking a look at our local market in San Diego I have spent a lot of time speaking to developers and investors and there appears that investors are finding it hard to find good deals and developers are starting to look at new opportunities to build.  This is all good news and may signal that the low interest rate environment is starting to take hold but remember that the market is coming from a very low level.  However, any improvement is encouraging.  In addition with any recovery it comes in fits and starts and this may once again be a false start.  Furthermore you need a solid employment environment to fuel the fire as investors will only buy until rents are once again too low to support mortgage payments.  Therefore to continue to add fuel to the recovery you need homeowners to step into the fray.

That said if the receovery can continue it will start to feed into the unemployment numbers and may slowly start the road to recovery.  Certainly we have a very long road to treck and I am not about to blow the corcks off the champagne as there are many global problems that could derail this modest recovery but at least for once I have something good to report!  Finally it is clear that to continue to support this recovery interest rates must be kept low for at least the next few years, but I have no doubt that the Federal Reserve will continue to force these lower.