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[Mapping Misery] Only 10-15% To Go!

The Economist magazine appropriately named Map of misery [1] article on US Housing showcases a map of OFHEO data that chronicles the change in housing prices by County/State.

The pain of America’s housing bust varies enormously by region. Hardest hit have been the “bubble states”—California, Nevada and Florida, and parts of the industrial Midwest. The biggest uncertainty hanging over the economy is how red will things get.

Yesterday I joked about Bernanke using heat maps [2] and The Economist saw the humor in it as well.

Sounding more like a cartographer than a central banker, Ben Bernanke this week showed off the Federal Reserve’s latest gizmo for tracking America’s property bust: maps that colour-code price declines, foreclosures and other gauges of housing distress for every county. His goal was to show that falling prices meant more foreclosures, and to urge lenders to write down the principal on troubled loans where the house is worth less than the value of the mortgage. His maps—where hotter colours imply more trouble—also make a starker point. The pain of America’s housing bust varies enormously by region. Hardest hit have been the “bubble states”—California, Nevada and Florida, and parts of the industrial Midwest. The biggest uncertainty hanging over the economy is how red will things get.

But can a “bottom” be projected?

One of the most favored ways to measure a housing market by The Economist magazine is to track the ratio of rental prices to sales prices. From 1960 to 1995, rent/price was 5% to 5.5%. When prices soared over the last decade, the ratio is 3.5%. In order to get the ratio back up to 5%, prices have to drop 10% to 15% assuming rents are flat. It’s lookin’ like at least 2010 before this happens.

In terms of projecting when we will see an end to the weak housing market, try correlating it with handgun accuracy. NYC police officers hit their targets roughly 34 percent of the time [3]. Of course, when they fire at dogs, roughly 55 percent of shots hit home.