Explaining Southern California's economy

Zillow is calling a housing bottom. What is Zillow talking about?

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A construction worker on the top of a home under construction at a new housing development on in Petaluma, California. If we have hit bottom, we may start seeing more of this kind of activity.

Zillow, the online real estate service, has called a bottom for the U.S. housing market. Literally. This is from today's release:

Home values in the United States have reached a bottom. The Zillow Home Value Index (ZHVI) rose on an annual basis for the first time since 2007, increasing 0.2 percent year-over-year to $149,300, according to Zillow's second quarter Real Estate Market Reports. Values have risen for four consecutive months.

A rise of 0.2 percent may not be terribly significant, so take this all with a healthy grain of salt — and an awareness that Zillow, as Chicago Now's Gary Lucido points out, indexes home values based on its own metrics, rather than on actual sales, as does the important Case-Shiller index.

Case-Shiller for May comes out next week, so you can look at Zillow's pronouncement and say, "Hmmm...interesting timing!" And you'd be on to something, because Case-Shiller has been signalling at least the formation of a bottom in U.S. housing prices for a few months now.

Los Angeles, for example, is working its way back to 2011 levels. 

But it's absolutely critical to remember that a bottom isn't the same thing as a restoration of an upward price trend. As I wrote back in September, when the home-price situation looked much more precarious, "[i]n terms of making homeowning into a financially beneficially proposition again, Southland residents are going to have to think long-term. Very long-term."

Why? Because the hitting bottom still means you have to crawl out of the cavern. So if we do see prices in Southern California and elsewhere begin to stabilize and ascend, we will then commence the potentially lengthy process of waiting for prices to recover to previous levels. That could take several years.

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