This post first appeared in the September edition of Cirios Trends: Getting to the Bottom of the Housing Market
If history has its way, housing inventory is set to rise.
And for all the potentially complex and controversial explanatio
ns for this coming bump in homes listed for sale, Occam’s razor will likely hold: The simplest explanation usually wins out.
Seasonality is the reason it snows in the winter, leaves change in the fall and bronzed Jersey Girls and beefy guidos head down the shore from Memorial Day to Labor Day. Seasonality explains what happens when the calendar changes, whether it’s weather patterns or consumer behavior.
The simplest explanation of seasonality in the financial world can be seen by looking at WalMart’s quarterly revenue figures. Q4, which includes the Christmas shopping season, is typically 50% better than any other quarter. So, when financial analysts tally up WalMart’s results, they have to back out this seasonality in order get good apples-to-apples comparisons. (For a more complex look at seasonality, please see Cirios statistics guru Austin Nelson’s piece entitled: The Magic of Seasonal Adjustments.)
So, back to housing.
Looking at the graph in the top right corner of this page, courtesy of Socketsite, a San Francisco housing blog, it’s fairly obvious that if the past 4 years are any predictor of the future, housing inventory (at least in San Francisco) is set to rise. This could blunt the recent exuberance of housing bulls around the country.
As anyone who has been paying attention to the financial media of late can attest, the view that the housing market has found a bottom is quickly becoming the opinion-de-jour. It’s clear, optimists argue, that buyers are stepping back into the market to take advantage of
screaming-hot deals.
Pessimists, on the other hand argue that the bottom will remain elusive, that recent strength can be attributed to government intervention into the market in the form of tax credits, artificially low interest rates and de-facto foreclosure moratoria preventing banks from unleashing their swelling portfolios of bank owned homes onto the market.
And here we are, Labor Day, when buyers typically refocus their energy on things like a new school season, the upcoming holidays and preparing for winter, rather than getting out and shopping for that new home.
The question then becomes, if pessimists and optimists can agree on the fact that positive sentiment, or social mood, is partly to blame/credit for this nascent housing “recovery,” what happens when data emerges in the coming months that maybe, just maybe, calls for a bottom in housing were premature?
Will buyers head for the hills, sending prices swooning once again? Or will they shrug, don their winter coats and leather gloves, saving the home search for the Spring … like they do every year?
