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Predicting the bottom

Dave0Dave0
edited November 2008 in Seattle Real Estate
A little over a year ago, DeeJayO did a post called "Why Inventory Matters" where he made a convincing argument that the Y2Y Case-Shiller index change is correlated to the Y2Y inventory change, with a 14 month lag. He also pointed out that due to this 14 month lag, you could forecast what the case-shiller index would be 14 months ahead of time. I took another look at that post today, and noticed that the actual Case-Shiller index followed closely to what he predicted at the time. Using that same formula, I forecasted out Case-Shiller data for the next 14 months. Just for fun I also applied prices to the predicted Case Shiller data using NWMLS median prices from 2000, when the CSI was 100. Below are the numbers I came up with (sorry I couldn't make the formatting very pretty).

If this forecast is right, that would mean the local housing market would bottom out in April 2009, since Y2Y inventory change peaked this past February.
    Month CS Index CS %Y2Y Combined $ Homes $ Condos $ August-08 175.88 -8.46% $391,559 $415,083 $248,865 September-08 176.76 -7.77% $393,517 $417,159 $250,110 October-08 175.78 -7.42% $391,329 $414,839 $248,719 November-08 175.31 -6.32% $390,290 $413,738 $248,059 December-08 175.66 -4.99% $391,057 $414,551 $248,546 January-09 169.3 -6.78% $376,906 $399,550 $239,553 February-09 161.01 -10.47% $358,455 $379,991 $227,825 March-09 156.42 -12.27% $348,229 $369,150 $221,326 April-09 153.64 -14.44% $342,030 $362,579 $217,386 May-09 156.04 -12.66% $347,395 $368,266 $220,796 June-09 160.72 -9.85% $357,801 $379,297 $227,409 July-09 164.36 -6.89% $365,897 $387,879 $232,555 August-09 174.8 -0.62% $389,150 $412,529 $247,334 September-09 176.97 0.12% $393,972 $417,641 $250,399 October-09 181.07 3.01% $403,114 $427,332 $256,209 November-09 188.35 7.44% $419,318 $444,510 $266,508

Comments

  • deejayohdeejayoh
    I'm flattered anyone noticed!

    I think my model needs an *

    * may not be reliable in the event of major bank failures and general economic meltdown

    :D
  • rose-colored-coolaidrose-colored-coolaid
    deejayoh wrote:
    I think my model needs an *

    * may not be reliable in the event of major bank failures and general economic meltdown

    Kind of what I was thinking. Thanks for running the model Dave0, but it sure feels like we are in untested waters now. My gut, which I loathe to trust, says your number crunching produces a good minimum time to recovery. If the financial markets unmeltdown (freeze?), we don't see a new inventory spike this winter (people scared to buy and sell), and we aren't in the midst of a prolonged recession/depression, then April stands to be as good a guess as any for when we reach the market bottom.

    Lot of ifs in there though.
  • AlanAlan
    Since we have a model that has been fairly accurate to this point we can watch to see how much it diverges over the next few months.
  • victorchaivictorchai
    so whoever bought this month can get 10% profit next Oct?
    :lol:
  • Dave0Dave0
    I agree that we're in uncharted waters, so I'm skeptical to trust any one model. That's all the more reason why I was a bit surprised when this model appeared to be accurate up to this point. Obviously we'll get a better idea as more data comes out each month, but this model shows a possible light at the end of the tunnel.

    Oh and victorchai, yes, but if this model holds true it will be 3%, not 10%.
  • Dave0Dave0
    Wow, the September numbers are out and Seattle's index is 172.84, which is a lot lower than the 176.76 that this model was predicting. I wasn't expecting anything that low for another 4 months. I'll be curious to see what next month's value is, to see if this month is an exception to the trend, or is the start of a steeper than expected trend. Maybe the economic meltdown is starting to throw this model off.
  • mukohmukoh
    IMO, there is no real market wide bottom that can be predicted. Some areas will bottom quicker then others.
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