Is the Bottom Still Years Away?

It’s hard to find any two experts who agree on when we’ll hit the bottom of the housing crisis. We’ve seen predictions ranging from 2nd quarter of 2011 to the end of 2012. But more and more, we’re seeing predictions that run into 2013 and 2014, followed by a decade of slow improvement. While it’s tough to predict, we can use the past as a sort of foreshadow of what’s to come. History tells us about the cycles and patterns that will play out as we move forward.  Why? Human psychology reliably swings between euphoria and caution in the marketplace, and the business cycle of rising debt and overexpansion followed by contraction of credit and retrenching is a regular feature of free markets. We also naturally wonder how much farther housing prices will fall. Predictions stake additional drops between 5-8%. Bubbles tend to rise and fall in symmetry, meaning that a bubble that took seven years to reach its peak typically takes about the same period to time to retrace to its starting point. By that reasoning, the housing bubble, which took off in 2001 and ended in 2007, will need about seven years to complete the retracement to historical valuations. That would put the bottom in the 2013-14 timeframe.

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