About That Short Housing Slump…

From the January 22, 2007 edition of Business Week Magazine :

Has housing hit bottom? Not if history is any guide, says Hugh Moore, a partner at Guerite Advisors, a money manager in Greenville, S.C. Using data from the seven previous housing cycles since 1959, Moore concludes that the sector will fall further—and land hard. Take housing starts. In the past, they fell an average 51% from peak to trough. So the current downturn, with housing starts off about 30% from the January, 2006, peak has further to go. And it may meet recession on the way. That's because in six of the seven cycles, when starts fell more than 25% from their most recent peaks, the economy tanked.

Another gloomy stat: In the same seven cycles, the amount people spent on new housing as a percent of gross domestic product fell an average 28% from market peak to trough. Worse, in six cycles, recession kicked in when the ratio fell more than 10% from its most recent peak. In this slump, Moore says, that ratio has fallen 10.5% from its fourth-quarter peak.

History also shows housing corrections take an average 27 months. Thus, the current doldrums may linger a year or more. "It's just going to be this slow, grinding drain on the economy," says Moore, who adds that month-to-month housing stats producing relief rallies are "just noise."

By Mara Der Hovanesian