This Is What a Housing Bottom Looks Like

Housing bottoms form when homebuilders finally stop building. They come when permits dry up. They come when foreclosures are so many that they drive down the prices to affordable levels. Housing bottoms come when the homebuilders give up and merge. They come when mortgage rates go really low. They come when unemployment claims level out.

The bottom, well, now. We are seeing a huge wave of buying of foreclosed homes in Northern and Southern California and in Florida. The numbers are too positive to think that these, the hardest-hit areas, aren't putting in long-term bottoms. Of course, where legacy housing is coming on, most notably in Florida and Las Vegas, where lenders like Corus Bank (CORS - commentary - Cramer's Take) abetted ridiculous levels of condominium construction, or New York, where the economy was on fire, courtesy the brokers and the lawyers and the foreign tourists taking advantage of a cheap dollar, you are not going to get a bottom for a year. In New York's case, the building continued right through the layoffs because of tax advantages that ran out inopportunely right at the top. It will most likely be a tough market for a while.

The areas surrounding General Motors (GM - commentary - Cramer's Take) and Chrysler plants will also take some time, and I suspect that many houses will be razed in the end.

But when you stop new housing, it makes old housing much more valuable, so we are in the final throes of the debacle that got us here. This will make the public-private partnerships tempting for those who simply don't seem interested right now or haven't been able to raise the money yet, because the risk capital in the country has been so decimated.

The desire to avoid calling a housing bottom is so pronounced that it will obviously happen long before it is remarked upon, just like the recession that began in September of 2007. It also means that the bottom in banks gets put in earlier, and I believe we have seen it. The bottom might be drawn out by capital raises -- witness fears of such capital increases in Bank of New York Mellon (BK - commentary - Cramer's Take) and State Street (STT - commentary - Cramer's Take) today.

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