Sam Zell Thinks Spring Recovery Probable
Sam Zell thinks a Spring recovery in the domestic housing market is probable. While counter to the masses, it would be very hard to bet against Zell’s market timing. Remember, he is the one who sold his Equity Office empire that he spent decades on at the top of the commercial market.
“I think starts have already pretty much bottomed out,” Zell said. “I think the housing market this spring will begin its recovery phase.”
Last year Equity Office Properties, a real estate investment trust founded by Zell, was sold to the Blackstone Group (BX.N: Quote, Profile, Research) for $23 billion in one of the largest-ever leveraged buyouts. via CNBC
My feelings are you do not bet against guys like Sam Zell, they tend to see things that regular folks do not.
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Comment by idesign on 26 February 2008:
I think Zell is dead wrong on this one. Let’s take California as an example. Even with the rash of foreclosures and price drops we’ve experienced in the last 18 months, California home prices are still 61% above historic norms.
From the mid-1970s to 2001, the historical ratio of median housing value vs. median household income was consistently between 2.6 and 3.0. What this essentially means is that median home prices were (on average) 2.8x the median household income for the last 30 years.
Using this 2.8 formula, it is very easy to estimate what median home prices would be if the most recent bubble never happened.
The current median in California using this formula is $402,000, which is 67% overvalued. The “non-bubble” median price, based on 30+ years of history, should be $158,606.
In other words, the bubble has just begun to burst, and still has a long way to go. Japan went through a similar wave of housing deflation that lasted 19 straight years. Americans who think it can’t happen here had better think twice. Deflation is going to soon become a household word in this country.
Comment by idesign on 26 February 2008:
Correction to above post. $402,000 is 61% overvalued.
Comment by Allan on 27 February 2008:
I too have a more skeptical view regarding the economy and the housing market in particular. The economy was bolstered by easy credit and a “perceived” increase in value and equity. With the largest asset a typical household owns in deterioration, I think we’ll see consumer spending slow down dramatically. \
Comment by Doug on 29 February 2008:
I just don’t see the turnaround happening this spring. Inventory will be the key. We have many more homes being listed every week versus the number of homes that are selling. There is still much to come with foreclosures and bank owned properties. The other factor is uncertainty. Buyers are still on the fence with a “wait and see” attitude.