2008-06-27 (Friday) by Gregory Tucker.

I took a leap of faith that the housing bubble, which started in 2005, deviates from the historic trend in roughly sinusoidal shape. In fact it is probably closer to a Poisson distribution, but the sinusoidal model is pretty close.

The blue points represent true values from Case-Shiller through April 2008. The red points represent the historical trend line, calculated from January 1980 to May 2005. The green points represent a sinusoidal variance from the trend line that roughly approximates the bubble.

Assuming the sinusoidal model is correct, and assuming the pricing correction will overshoot the historical trend line in the same manner, the bottom of the market will occur in April to May 2011. Prices will converge with historical trends around November 2013.

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2008-06-26 (Thursday) by Gregory Tucker.

According to Case Shiller’s April 2008 numbers, Portland’s housing prices are decreasing at 0.88% per month at today’s prices. The peak occurred in July 2008, so this graph represents 10 months of data.

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2008-06-26 (Thursday) by Gregory Tucker.

From Portland Housing Blog: “I believe you have made a mistake and are putting the bubble prices in your trendline. If you exclude those it pull down the final value and pushes out the time. Probably out into 2009.
You should probably stop your trend line data back in say 2003-2004. memmel | 06.26.08 - 12:13 am”

This is challenging, because the date you stop the trend line is arbitrary, and wide open to accusations of cherry picking. It is hard to distinguish the beginning of the bubble from noise. I chose May 2005 because that is the point where prices exceeded the trend line in the original graph. The data appears to back this choice.

When we stop the correlation analysis at May 2005, we obtain the graph above. The 221 samples from January 1987 to May 2005 yield a Correlation Coefficient of 0.9946 and a Coefficient of Determination (confidence) of 98.9%. The slope of 0.428 implies a month-on-month gain of 0.29% at today’s prices. If prices remained flat, the trend line would catch up with prices in 69.8 months in early 2014. If post peak declines of -1.53 would continue, the trend line would intersect prices in 15.2 months (June 2009) at an equilibrium of 153.1.

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2008-06-26 (Thursday) by Gregory Tucker.

The data set includes 256 months from January 1987 to April 2008. The correlation analysis shows a correlation coefficient of 0.96345 with a Coefficient of Determination (confidence) of 92.82%. The trend line shows a slope of 0.53, implying month-on-month increases of 0.33% at today’s prices. If prices remain flat, the trend line will require 21.7 months to catch up with today’s prices.

However, since the peak in July 2007, the trend line is inverted, with a slope of -1.53. If post-peak declines would continue, the trend line will catch up with today’s prices in only 5.6 months, or around October 2008, at an equilibrium value of 166.3.

Will prices finally stabilize when they intersect with historical trends? Given the nature of bubbles, the markets will probably over-correct by a little bit, but confidence might return in November 2008, corresponding to the upcoming elections.

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