Expert: Housing Market has Bottomed
In a recent interview, Wharton Business Real Estate Professor Peter Linneman, a well-respected authority on the real estate market, declared that the market has bottomed: “If you ask, is the storm over? The storm is over. What’s left is cleaning up the wreckage from the storm.” In other words, while the free-fall in prices may be coming to an end, there is still plenty of work to do rehabilitate the market.
Professor Linneman makes an important distinction in his predictions between single-family homes and multi-family homes: “Single-family housing starts have bottomed and will slowly pick up, [and] single-family housing prices in almost every market have bottomed….The multi-family side has fallen off a cliff. Multi-family starts are about a quarter of their historic norm.” In this regard, his analysis is firmly supported by the most recent data: “The Commerce Department said on Tuesday construction starts for single-family dwellings, the worst-hit part of the housing market, rose 1.7 percent from June to an annual rate of 490,000 units — the highest since October. But a 13.3 percent drop in new multifamily home projects pushed overall housing starts down 1 percent last month to an annual rate of 581,000 units after two months of gains.”
By Linneman’s own estimation, the national data is still pockmarked by significant regional discrepancies. The west – California, Nevada, and Arizona – remain battered, and “Construction of new housing in the Western states, including Arizona, fell 1.6 percent in July from the previous month, the second straight monthly decline, and was off 31.9 percent from a year earlier.” In other words, it’s probably more useful to look at specific regional markets rather than focusing too much on the big picture.
Linneman is especially critical of the government, both for stoking the crisis and for its counterproductive efforts aimed at alleviating it: “We’ve had a government that for the last year has — under both the Bush administration with Paulson and the Obama administration with Geithner — leaped, then looked.” For better or worse, it looks like the government is going to remain active. Already, the government has moved to stimulate home ownershi, increase the stock of rental housing, limit foreclosures, and regulate the appraisal process. Good news for the housing market, even if Professor Linneman isn’t smiling.