Kettle1 Research

From NJREREPORT.com

FHFA NJ HPI Vs YOY % Change and % Deviation From Linear trend

40% 700

30% 600
% YOY Delta & % Deviation From Linear Trend

20% 500

NJ HPI ( ADj 09$)

10% 400

0% 300
Mar-75

Mar-77

Mar-79

Mar-81

Mar-83

Mar-85

Mar-87

Mar-89

Mar-91

Mar-93

Mar-95

Mar-97

Mar-99

Mar-01

Mar-03

Mar-05

Mar-07

Mar-09
-10% 200

-20% 100

-30% 0

NJ HPI % Deviation From Linear Trend NJ HPI YOY % Delta NJ HPI (Adj 09$)
 Kettle1 Research
From NJREREPORT.com

• Note that the Bottom of rhte last two real estate cycles corresponds to the YOY % Delta crossing the X axis while the % Deviation is at
maximum negative value and begins to develop a positive slope.
• The current housing trends would appear to be similar to what was seen at about 1992 in the last housing cycle. This suggests that we are
not at bottom but are entering the extended slow decline phase of the housing correction.
 Kettle1 Research
From NJREREPORT.com

% Deviation From Linear Trend

60%

In the 90's this brief hiccup in the general

50% corrective trend was heralded as a bottom
throughout major housing markets. We are
most likely at the equivilent phase in the
40% current housing correction. The implications
for this are another 5- 6 years of a slow
grinding decline.
30%

20%

10%

0%
March-75 August-80 February-86 August-91 January-97 July-02 January-08

-10%

-20%

-30%

-40%
NJ HPI Trend Dev CS NY metro Trend Dev CS Comp 10 Trend Dev
 Kettle1 Research
From NJREREPORT.com

• Comparing the % Deviation From Linear Trend for the Case-Shiller NY Metro Index, the Case-Shiller Composite 10 Index, and the NJ
FHFA HPI, we highly similar patterns and can see the “hiccup” that occurred in the 90’s clearly in the CS index trends.
• A possible “hiccup” that has been magnified due to government intervention in the housing market can clearly be seen in the current
housing correction. Existing trends strongly point to the housing correction leaving the rapid phase and entering the extended slow
decline phase.
• Note that if we follow the general trend seen during the 90’s housing correction we will not see the true bottom for another
5 -7 years (2016 – 2019)

Where do we go now?
• Where the housing market goes from here depends of three key factors; Incomes, Interest Rates, Inflation.
• Pressures from globalization and unemployment are likely to continue exerting downward pressure on incomes. Barring significant
inflation marking its way into incomes, the best case a scenario at this point is income staying flat, while the most likely outcome is a
general decrease in incomes.
• How long the Federal reserves ZIRP policy can be maintained is a question of great debate. However in the end the policy must be
abandoned if for no other reason then being forced to do so due to bond market response. An increase in interest rates at the same time
incomes are flat/declining, and inflation is increasing will have a substantial negative impact on home prices.
• Historical trends suggest that we will be at a sable bottom point when we are at or below a mortgage to income ratio of 2.5 – 3X. The
housing prices associated with ratio depend on inflation and on the credit/mortgage market.
• Ultimately the likely outcome is that the real (inflation adjusted) value of homes in the period of 2016-2019 is likely to be below 1999
levels. Its also likely that the Nominal values of homes will still be well above 1999 levels due to current fiscal policies and the
subsequent inflationary effects.
Projected Drop Peak to Bottom Projected Drop Peak to Bottom
(Nominal Terms) (Adjusted (Real) Terms)
CS Comp NJ FHFA CS Comp NJ FHFA
CS NY Metro CS NY Metro
10 HPI 10 HPI
Projected Change
in Housing From -47% -42% -48% -31% -24% -34%
Current Position
Projected Change
in Housing From -57% -59% -55% -48% -50% -44%
Peak Position

Note: These #'s assume a return to mid 1999 housing price levels, based on historical trends as well as debt load ratio's and interest rate effects
Kettle1 Research
From NJREREPORT.com