Special offer

This housing slide and past housing cycles

Real Estate Agent with Kilauea Real Estate Company

With the end of a year marked by weakening housing markets drawing to a close, the question on many industry professionals' minds is "When will this market hit bottom and when will it start to recover?"

The housing market has always been cyclical, with varying elevation in the peaks and valleys.

This time around, the market climbed to Mt. Everest-like heights. And the fear among market analysts is that we may be staring down at a drop of Grand Canyon proportions.

Some are calling this the worst housing market downturn since the Great Depression, while others are drawing parallels to the tech bubble, and to housing slumps in the 1980s and 1990s.

History may not be a foolproof guide for the future course of the housing-market downturn, as there are many unique elements at play in the latest market run-up and a lot of guesswork about the bottom of the market.

Economists have said that the latest housing-market cycle was moving out of step with the overall economy in some ways, and expect that it will move more in tandem with the overall economic cycle after this period of adjustment.

There are some rays of hope -- exports have been picking up, and if the trade deficit begins to close then perhaps the nation could begin to recover some ground in the roughly 3 million manufacturing jobs that the nation has lost since 2000.

The difference between the current market cycle and past market cycles is like the difference between a "V" and an "L," according to Ed Leamer, director of the Anderson Forecast, a quarterly economic forecast produced at the University of California, Los Angeles.

Past housing-market declines looked more like a V-shaped curve when placed on a graph -- a sharp drop followed by a sharp rise. And this shape was also evident in the overall economy.

The earlier episodes were coincident with a recession in which job loss was very substantial but also jobs bounced back very rapidly -- thus a 'V' for the economy and a 'V' for housing," Leamer said.

"This time the economy is growing or flat through all of this and housing is experiencing the first leg of an 'L.'" In other words, a steep drop that will be followed by a flattening.

I my oppion what its worth housing-market slumps occur about every 10 years. And while this downturn could be more severe than some past cycles, it is definitely not a surprise.