The Theory of Two Bottoms

by Will Smith

UrbanTurf usually avoids publishing dense statistics and economic analysis about the state of the housing market. But we saw something yesterday on the widely-read Calculated Risk blog that we believe warrants coverage here. It’s the theory of “two bottoms” in the housing market.

You’ll recall that yesterday’s surprisingly positive numbers from the Commerce Department — housing starts and building permits both beat analyst estimates — led many pundits (including Jim Cramer) to proclaim that the housing market has bottomed.

Well, not so fast, says Calculated Risk author Bill McBride. McBride espouses the view that the national housing market will reach two bottoms at two different times. The first bottom is the activity bottom; that is, when activity like housing starts stops falling and stabilizes. The second bottom, which comes later, is the pricing bottom, when home prices stop falling and stabilize.

McBride believes that the bottom we may be seeing now is the activity bottom, not the pricing bottom. In fact, he argues that prices could continue to fall for at least another year in the worst cases.

Why is the distinction between the activity bottom and the pricing bottom so important? Because you (the home buyer or home seller) likely care most about the market value of homes so that you can have a sense of whether prices are going down, up, or sideways. Home prices are what affect your net worth, the size of home you can afford, the profit or loss you will take if selling your home, etc. The activity statistics — housing starts, new homes sales, residential investment — are important economic indicators but are less immediately relevant to John and Jane Doe deciding whether to buy a home right now.

Keep in mind: the “two bottoms” theory is just that, so there are surely analysts and market watchers that may disagree with the concept. (Though McBride provides very compelling historical evidence for it.) The important thing is that when you hear the economists and pundits talk about reaching a bottom, confirm whether they are talking about a bottom in housing activity or housing prices. Because as McBride argues, “These bottoms could happen years apart!”

To learn more:

This article originally published at https://dc.urbanturf.com/articles/blog/the_theory_of_two_bottoms/1040


  1. Debbie Cook said at 10:34 am on Saturday June 20, 2009:

    You never known where the bottom is until it’s moving back up.  Then it’s too late - everyone misses the bottom.

  1. Menace said at 12:06 pm on Tuesday June 23, 2009:

    One of the most insane notions in buying homes, or any other investments, is to “time” the top or bottom.  In that case, it’s missed every time because there is no foresight to pinpoint it.  (Hindsight is GREAT for that.)

    If I’m a seller, there is NO WAY I am DECREASING my price with INCREASED activity (unless I’m upside-down or have time constraints).  So, although this sounds nice, I need more real-world scenerios to be convinced.

    FYI-If you want to know when the market’s back, watch the millionaires.  People with $$$ move more quickly. Theory THAT!

Comments are closed.

DC Real Estate Guides

Short guides to navigating the DC-area real estate market

We've collected all our helpful guides for buying, selling and renting in and around Washington, DC in one place. Visit guides.urbanturf.com or start browsing below!

Northern Virginia

Profiles of 14 neighborhoods across Northern Virginia

Looking to Give People A Reason to Stay Past 6pm
Happily Straddling the Line Between City and Suburb
Columbia Pike
Arlington’s Neglected Stepchild is Getting a Makeover
Crystal City
Turning Lemons into Lemonade
Lyon Village
Developing An Air of Exclusivity?
Hitting Its Growth Spurt
An Urban Village Hitting Its Stride
Del Ray
Virginia’s Small Town Near the Big City
Eisenhower Avenue
The Vibrancy Might Take a Few Years
The Quiet Neighborhood By the Beltway
Old Town
Mayberry By The Potomac
132 Commerical-Free Acres
Downtown Falls Church
Staying the Same in the Midst of Change
Tysons Corner
Radical Change Could Be On The Way

See more Northern Virginia »


Profiles of 14 neighborhoods in suburban Maryland

Small-Town Living in the State Capital
Bedroom Community Gets Buzzing Cache
Cabin John
In With The New While Maintaining the Old
Chevy Chase
Affluence, Green Lawns and Pricey Homes
Downtown Silver Spring
Experiencing a Resurgence After a Bumpy History
A Suburb on Steroids
Rockville Town Square
Despite the Dynamism, Still Somewhat Generic
Takoma Park
More Than a Little Bit Quirky
A Foodie Magnet on the Verge of Change
Capitol Heights
Kudzu, Front Porches and Crime
Glass Half Full or Half Empty?
Mount Rainier
Artists, Affordable Homes and A Silo Full of Corn
National Harbor
A Development Rises Next to the Potomac
Riverdale Park
A Town Looking For Its Identity

See more Maryland »

Northwest DC

30+ neighborhood profiles for the city's biggest quadrant

16th Street Heights
DC's Sleeper Neighborhood
Where (Almost) Everyone Knows Your Name
AU Park
One of DC’s Last Frontiers Before the Suburbs
DC’s Northern Neighborhood on the Cusp
DC’s 535 House Neighborhood
Cathedral Heights
Do You Know Where That Is?
Chevy Chase DC
Not to Be Confused With the Other Chevy Chase
Cleveland Park
Coming Back After A Rough Year
Columbia Heights
DC’s Most Diverse Neighborhood, But For How Long?
An Island of Serenity East of the Park
Dupont Circle
The Best of DC (For a Price)
Foggy Bottom & West End
Where the Institutional Meets the International
Forest Hills
Ambassadors and Adventurous Architecture
Foxhall Village
350 Homes Just West of Georgetown
Friendship Heights
A Shopping Mecca With a Few Places to Live
History, Hoyas and H&M
Glover Park
One of DC’s Preppier and More Family-Friendly Neighborhoods
A Posh View From Embassy Row
LeDroit Park
A Quiet Enclave in the Middle of the City
Logan Circle
Trendy Now, But Not By Accident
Mount Pleasant
Sought-After Homes Surround Main Street in Transition
Mount Vernon Triangle
From Seedy to Sought-After
The Long, Skinny Neighborhood at the City’s Northwest Edge
Park View
It’s Not Petworth
Penn Quarter/Chinatown
DC’s Go-Go-Go Neighborhood
Getting a Vibrancy of Its Own
The Duke’s Former Stomping Ground
Shepherd Park
DC’s Garden of Diversity
Spring Valley
A Suburb With a DC Zip Code
Not To Be Confused With Takoma Park
Not Quite Like Its Neighbors
U Street Corridor
The Difference a Decade Makes
Woodley Park
Deceptively Residential
Adams Morgan
No Longer DC’s Hippest Neighborhood, But Still Loved by Residents

See more Northwest DC »

Southwest DC

The little quadrant that could

Southwest Waterfront
A Neighborhood Where A Change Is Gonna Come

See more Southwest DC »

Northeast DC

Profiles of 10 neighborhoods in NE

New Development Could Shake Up Pastoral Peace
A Little Bit of Country Just Inside the District’s Borders
Not to Be Confused With Bloomingdale
Fort Totten
Five Years Could Make a Big Difference
H Street
A Place To Party, and To Settle Down
The Northeast Neighborhood That Few Know About
Michigan Park
A Newsletter-On-Your-Doorstep Community
Evolving from a Brand to a Neighborhood
Ripe for Investment Right About Now
The Difference 5 Years Makes
Big Houses, A Dusty Commercial Strip and Potential

See more Northeast DC »

Southeast DC

6 neighborhoods from Capitol Hill to East of the River

Capitol Riverfront
Still Growing
Hill East
Capitol Hill’s Lesser Known Neighbor
Congress Heights
Gradually Rising
Notable for Its Neighborliness
Historic Anacostia
Future Promise Breeds Cautious Optimism
Eastern Market
A More European Way of Living

See more Southeast DC »

Upcoming Seminars ▾