Bottom Hunting: The New Economic Pastime

Reader Comments
Back to blog

Folks, all of your yah-hooing about the new administration, "hitting bottom" already, etc. is just pondering. Really, nobody knows timing. It will turn when we identify the causes for the crisis - all of them, and then find solutions. Real, sustainable solutions, not band-aids. The solution to over-spending is not more spending. It is a complete redressing of the economy to live within its means. It is a new reality-based level setting. We don't need to spend money delaying the inevitable (e.g. keeping people in houses they never could and never will afford), but rather to spend money accepting the inevitable, and building a better future based on the inevitable. Affordable housing, based in urban areas where we can centralize transportation, the shipping of goods, etc. Lets look at this as an opportunity to create something new, not "fix" something old.

Deb of ID 10:50AM February 15, 2009

Let's just go back to the good old day's. Just about say; 1900 to 1910. Hey; if you don't do right, we'll hang you, shoot you, e.t.c. We need to get rid of a lot of lawyers, not so many police, get rid of all these law's; that are to protect us; from us ,and let us decrease the surface population, by we the smart people, and them the dumb people, the dishonest . Surely we'd lose, one third, to one half right there. I couldn't of said it better myself.

george mcgillacottie of TX 3:05AM February 10, 2009

Everyone needs to google Zeitgeist.com and watch the two critical documentaries about our economy and our deeply embedded views that keep us paralyzed.

Linda of CT 12:47PM February 09, 2009

Housing prices in the Phoenix area have already fallen around 30% from the peak and local real estate experts expect to see the local housing market bottom out this year. But what does that mean for you? How will you know when the market’s bottomed out and it’s the perfect time to buy? There are a couple of strategies you could use:
1) You could wait until prices have been rising again (consistently) -- an as-sure-as-you’ll-get sign that the market’s in recovery. Take care with this strategy -- as you can see from the graphs I’ve posted, housing prices have risen some months even during an overall trend of declining prices. If prices rise consistently for three months or so, it may be a good sign that the downward trend has reversed.
2) Buy when you are ready. Prices may decline more from today’s levels. But because they’re already off around 30% from the peak, you can sleep well knowing that you got a good deal on a home -- even if the price declines a bit more until the market begins its recovery. For signs that you are ready to buy a home, check out last month’s blog post “Now May Be the Time to Buy — Here’s How to Do It.”
3) Buy now because mortgage rates are low. Rates on 30-year fixed mortgages still remain at historic lows. And experts agree that once housing prices begin to rise, so will mortgage rates. So getting in now -- at a low interest rate -- could be a good strategy even if the value of the home you buy declines a bit before the market recovers.
For more, visit www.myphoenixmlsblog.com

MyPhoenixMLS.com of AZ 12:57PM February 04, 2009

None of the people who looked at unemployment numbers in the comment section above have even taken into account the U6 figures. This tells me that if their IQ's were one point lower they would be rocks. My best guess would be that they don't even know what those numbers are. I would assume by their comments that they think that more bailout money into the system is a good thing in a deflationary time. They also fail to recognise that every country that has done that has gone into a hyper-inflationary depression where their currency failed. You would think that jacksmith of Texas would have maybe heard something of what Ron Paul has been talking about for the last decade. He does seem a little tipsy on the Barry juice. Barry Soetoro (aka Barack Obama). If you made your financial moves when this recession started in the fall of 2007 you may be sitting alright. To think that B.O. is going to make a difference now is a little late. Hey the impact of every interest move is realized in the economy 18-24 months after the fact. Let's see, treasury bonds are at 0% now. Does that sound like a good investment for those nations that are buying them? Not if our credit rating falls.

Jeff of WI 6:19AM January 29, 2009

I am not an economist, just an observer of the economy, people, and markets. I think we just hit the bottom. House prices are approaching reasonable or below in all markets except in the extreme places like LA or NYC, and they will slide more before stopping. Houses are starting to sell again, especially repos and fixer uppers. Neighborhoods are welcoming newcomers. People are starting to sensibly shop again. No one I know panicked and sold off or cashed in their retirement or investments. Most corporate executives are responsible, and many banks are doing OK.
This was a long needed correction to greed and stupidity, and it has occurred. Look now for a return to slow and SUSTAINABLE growth fueled by productivity and innovation, not rampant speculation.

Independent of AZ 4:16PM January 28, 2009

As grim as your assessment is, it's not very realistic.
1)Unemployment
The most realistic long range forecast I have seen was realeased by the Levi Economic Institute of Bard College:
http://www.levy.org/pubs/sa_dec_08.pdf
Without a stimulus they predict that the GDP will trough in the first quarter of 2010. With a stimulus it will trough in the third quarter of 2009. Without a stimulus unemployment will peak at 10.3% in late 2010. With a stimulus unemployment will peak at 9.1% in late 2010. In the last two recessions unemployment peaked 5 and 7 quarters after the trough in GDP. If that happens this time then even with a stimulus don't expect a peak in unemployment before the fourth quarter of 2010, and it may not even occur before the second quarter of 2011. With no stimulus add two more quarters to each.
2) Housing
For accurate national information I recommend Robert Shiller:
http://www.irrationalexuberance.com/
Real housing prices have fallen 29% from their peak in 2006 but still are 45% above their average from 1890 through 1997. Given that the totla residential housing stock was worth about $27 trillion in 2006, housing owners have lost about $8 trillion in real terms in the last two and a half years. They will have to fall 30% from their current value to get to the secular average. If they do, the total lost housing equity will be nearly $14 trillion. At the rate they are falling that will take until the fourth quarter of 2010. However, in the last mini housing bubble in the late 1980's housing prices fell sharply until unemployment peaked in 1991 and then continued to fall slowly for another 6 years after that.Historically, there have been cases of national housing prices falling for decades. Real housing prices in the United States fell about 50% from 1894 to 1921. Residential urban land prices have fallen every year in Japan since 1990 for a total of about 40%. In Amsterdam housing prices fell 80% from 1734 until 1816, an 82 year bear market. In short expect the free fall to continue for 2 years, but the bottom could be decades away. The upside is that housing will be much more affordable in the future.
3)Consumer Confidence
As you said, consumer confidence tracks unemployment so don't expect it to bottom out until late 2010 at the earliest.
4)Stock Market
The stock market is a lagging indicator. In the last recession it bottomed out 11 months after the end of the recession. Furthermore, this is not a typical recession. Kenneth Rogoff released a paper recently analyzing financial cises worldwide:
http://www.economics.harvard.edu/faculty/rogoff/files/Aftermath.pdf
The reason why I am citing this paper is because one of it's findings was that stock markets bottomed on average 1.5 years after the trough in GDP. If this is average don't expect the bottom in the stock market to occur until the first quarter of 2011 with a stimulus, or the third quarter without.
In short, nothing will bottom this year.

Mark A. Sadowski of DE 12:12PM January 28, 2009

The Economic Downturn:
My fellow Humanbeings it's only temporary. Don't be scared. Scared is what the evil doers want you to be. This severe economic downturn was not unforeseen. Many of us tried to warn everyone that we could years ago. And we did our humble best to head it off, and limit it's destruction. But their were some very powerful, and Evil forces at play that limited our ability to completely stop this economic downturn before it happened.
Fear not my fellow humanbeings. Your future, and the future of the World is very BRIGHT! now. :-)
The World has continued to be blest with excellent leaders who have brilliantly handled the dangers, and complexity's of our geopolitical challenges. And with the help of the world, America has now elected a new President (President Barack Obama), and a government who stands ready to lock arms with the rest of the World's leadership in solidarity towards a better World for all.
President Obama's choice of Cabinet, and advisers has been nothing short of brilliant. And his performance has been excellent. I believe President Obama stands ready to do whatever he has to do to see the American people, and the World through this crisis.
So spend, but spend wisely. Trade with each other, but trade wisely. Live, work and enjoy the majesty, and miracle of your existence in the community of humankind. This is a great time to be alive. :-)
It is not an accident that humanity exist on a small blue planet tucked in the safest corner of the universe. A planet with a constant source of warmth and energy from the sun. A planet surrounded buy a forcefield we call an atmosphere. And an atmosphere that keeps in the things we need to survive, and keeps out most of the things that could harm us. :-)
It is not an accident that the mass and orbits of the planets, moons, asteroids, and other heavenly body's are perfectly aligned to harmlessly deflect the larger objects that could hurt us away by gravity. Deflecting danger into outer space. Or into the sun.
The sun still shines on us. And our future is GOOD! This economic downturn is just a little darkness before the dawn.
Things are going to be GREAT! That is what you have chosen. The new Renaissance has begun.
God bless all of us
Jacksmith --- Working Class :-)

jacksmith of TX 8:06PM January 26, 2009