Real estate economists perform a vital function in our society: they predict the future with 99 percent accuracy. And for that one time in a hundred when they get it wrong, they offer a money-back guarantee!
I’m reminded of this by an article I found while cleaning out my files, an SFGate.com posting from February 11, 2011, which quotes Zillow chief economist Stan Humphries as predicting that “the Bay Area and many other markets should hit bottom this year”. And you know what? Stan was right! Silicon Valley real estate did bottom shortly after this, began rising in late 2011, and the rest is history as we know it.
“And you can take that to the bank!” Or for you younger readers who’ve never seen the inside of a bank, “and you can transfer that data point to your bank account electronically!”
But Stan should have stopped while he was ahead, because unfortunately for his legacy–although fortunately for leading economists who get it wrong wrong wrong, their fanboys have a short memory–he also asserted that this “doesn’t mean values will start rising anytime soon”. No sir. “I expect a long, flat bottom. Most markets will remain in malaise for an extended period of time. It will take at least three years to see normal appreciation rates, i.e., in the 2 to 4 percent range”.
Message: Hey, homebuyers! You have plenty of time! So set your alarm clock for 2015 and go back to sleep!
Why? “The foreclosure pipeline is still clogged with properties, many homeowners are underwater and unemployment continues apace.”
Common wisdom circa early 2011. But common wisdom is always common and rarely wisdom. Because while everyone “knew” that the foreclosure pipeline was “clogged”, no one knew how many properties were in or near foreclosure–numbers varied wildly, depending, I guess, on how much pain you wanted real estate to feel. And when homeowners began seeing Valley-style price appreciation, it didn’t take them long to get their equity back. And Silicon Valley was about to begin one of its hiring binges.
Silicon Valley real estate had a bottom about as flat as a Half Dome ascent.
Here’s a comparison of home prices per square foot, in the Valley sub-markets I follow, between February 2011, when Stan made his prediction, and February 2013, after slightly more than a year of market recovery:
Anyone here see that flat bottom Stan mentioned? That 2 to 4 percent annual appreciation?
Those readers who contacted me in 2012 complaining that real estate had no right to recover, and proving it with esoteric economic theories and charts and in general acting like economics is a science, might want to reach out to Stan and see if he’s offering the usual money-back guarantee.
copyright © John Fyten 2016