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When is it OK to say the housing market has crashed?

“Numerology” tries to find reality within various measurements of economic and real estate trends.

Buzz: Is it safe to say housing has “crashed” when Southern California’s homebuying pace drops by 25% in a year to the sixth-slowest June in the past 35 years?

Fuzzy logic: I’m bemused by how sensitive the real estate industry is over how springtime’s dramatic homebuying slowdown is described — even when few in the industry foresaw such rapid cooling. For example, “Even though we have seen sales decline, economists are still saying it is unlikely home prices will crash,” says a recent newsletter from the Southwest Riverside County Association of Realtors.

Source: My trusty spreadsheet reviewed DQNews’ homebuying records for Southern California dating to 1988, specifically looking at the ups and downs of transaction counts.

Topline

June’s 20,289 closed transactions in the six-county region — sales of houses or condos, existing and new residences — was the sixth slowest June in the 35 years of DQNews data. The spreadsheet found slower June tallies in the mid-1990s malaise (1993 and 1995), the big bubble bursting (2007 and 2008), and the pandemic lockdown (2020).

How do we know when a recession has begun?

Southern California house hunters bought one-quarter fewer homes in June than they did one year earlier. Since 1988, only 30 months of the 414 had bigger year-over-year drops! That’s only 8% of the time. So, it’s a decline of rare proportions.

Plus, it’s no one-month blip. For the spring quarter, sales were off 20% in a year. Bigger drops happened in only 10% of three-month periods in the past 35 years.

Linguistics

Let’s look at what “crash” as a label might mean.

I consulted Merriam-Webster’s trusty online dictionary, looking for what would serve as the “economic” definition of a crash when used as a verb. It said: “to go to a lower level especially abruptly.”

Merriam-Webster’s example: “Sales of that phone have crashed since the competing version came out.”

And ponder synonyms for crash from Merriam-Webster: crater, decline, descend, dip, dive, drop, fall, lower, nose-dive, plummet, plunge, sink, skid, tumble.

Bottom line

The word games certainly heat up at economic inflection points.

And it’s not just semantics. Public perception becomes part of the economic equation when financial growth is in doubt.

Ponder the ongoing debate about what makes a “recession.” Is it simply two consecutive quarterly dips in the gross domestic product? Or is it a far more elaborate study of a broad collection of business indicators done by the National Bureau of Economic Research, a private group of economists?

At a minimum, there’s a grand blame game tied to any “recession” designation.

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