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What one phrase has done more damage to the housing industry – consumer and practitioner alike – in the last two years? “I’m waiting for the bottom.” have been sitting on the sidelines, waiting for prices to hit their lows. Those REALTORS who didn’t just quit (200,000-plus of them did) similarly stuck their heads in the sand, waiting for everything to just blow over. “When the market changes,” was the favorite phrase of meetings, workshops, articles and convention speakers. A few out there – the Harneys, the Stavers, even yours truly – continued to plead for sanity. Nobody has ever called the bottom of anything on time: from Tulips to Tech, market bottoms have consistently eluded all of the experts. So it should come as no surprise that the REALTORS missed the housing bottom this time as well.

First, let’s define our terms. Just what would the housing “bottom” look like. Most non-economists make the non-economist mistake: They call the point of lowest “prices” the bottom of a commodity market. Nothing could be further from the truth; but most laymen took “Home ” not “Market ” in high school. So most people think the bottom in housing is the point at which home prices are at the most “discounted” levels in a range of time.

That’s called a sale; or clearance; or flea market. But it’s not necessarily a housing market bottom.

A bottom in any market represents the best time to buy the commodity. The “best” time is usually that point at which, all things considered, the purchase of the commodity would represent the better choice for using capital than any other alternative. In other words, buying a house at the “bottom” would be the best use of money compared to buying “anything” else that money could purchase at that moment in time.

They key is to understand the phrase “all things considered” because only then can you even attempt to estimate a bottom in a market. Here’s a simple example from everyday life: assume you’re going to purchase an automobile. What are the “all things” to be considered? Price, certainly, but also issues like total cost of ownership, fuel efficiency (which represents the weekly ownership cost), insurance, typical repairs, and warranty reliability (and in the case of US automakers, future likelihood of manufacturer existence). Finally, there is the cost to acquire. For most people, this comes down to the decision to finance or to pay cash.

Now consider why some people finance – even when they have enough cash to purchase outright. The decision comes from a judgment call on whether it’s better to use the cash for the commodity purchase, or to hold it for a “better use” such as paying other bills, investing, or any other alternate use of the funds. Borrowing becomes a better idea than cash-funding because the “alternate uses” of the cash on hand are more valuable than the cost of paying interest on borrowed funds.

Simple. We do this all the time. Do we use a credit card or pay cash? Do we lease or buy a computer. The “all things considered” calculation comes into play when we select temporary bottoms (investment moments) for lots of purchases.

How come we missed it, then, when it came to the housing market.

Make no mistake: The housing bottom has already come and gone. The “best time to buy” has passed us by. can only expect longer waits and higher borrowing rates to slow their – or force them to cut prices again. Buyers are now facing new pressures on their downpayments, including an expiring tax credit window for first time purchases. But don’t just believe me. Look at the ways in which housing has no longer become a “good moment” decision in this market.

First, interest rates are at their highest in six months. And rising. So the cheap funding bottom has come and gone:

Next, basic consumer prices (ie., CPI or normal goods inflation) are rising, making it harder to qualify for a :

Specific energy costs are also rising to half-year highs (and more than double since the last quarter). Higher costs at the pump mean less money for downpayments or mortgage insurance:

And lastly, qualifying for a mortgage depends upon getting and holding a job, which is becoming harder to do every day:

If you look at each of these charts carefully, especially Unemployment, Gas Prices and Mortgage Interest Rates, it looks like the bottom occurred in April of 2009. Since then, the “other things to be considered” for using one’s money (or earning it) have been losing value in economic terms. According to the Wall Street Journal today:

The Mortgage Bankers Association cut its forecast of home-mortgage lending this year by 27% amid deflating hopes for a boom in refinancing.

That means the bottom isn’t “ahead” but behind the mortgage industry, for refinancing. Even home purchases lending will slow, because “The dollar value of new loans for home purchases is being depressed by lower house prices,” says an industry spokesman. Ironically, then, lower home prices (the “highest discount” for the commodity) will actually stall the market, not make it tick up. Makes sense, since nobody wants to purchase a commodity that is still falling. There must be better “things to consider” using your dollars for instead, such as buying gold, or even oil stocks, which the consumer directly sees is rising every day.

And even though the National Association of REALTORS assures us that now is a great time to buy, because their Housing Affordability Index shows the best “ability” for purchase based upon household incomes, it’s a misleading indicator, because it assumes a 20% downpayment. And right now, with the cost of household goods, borrowing and inflation rising, most households are rightly opting to hold onto the cash that might have been their downpayment. Especially, they aren’t using it to chase homes down a declining value curve.

For sellers, it’s going to get much more costly to sell. They not only compete with other properties in their local area and price range; they now compete with other “alternate uses” of cash and borrowed funds that buyers could choose. With costs rising for energy, food and basic goods, and job growth stalled, would-be buyers may just decide to rent – a very stable and predictable use of their funds, at least for a year at a time – and invest their excess funds (or credit) into commodities more likely to rise than fall.

This means house prices go lower still, in many markets. They must reach clearance level lows from their irrationally exuberant highs. But the cheapest housing prices will not coincide with the best times to buy. And where prices are stable – or even rising – the “other factors” that influence housing purchases are getting worse.

The housing bottom has come and gone. It will only get harder, not easier, for buyers to complete a transaction for the next year or two. For 2009, that means the normal home sales season has come to an end already. The rest of the summer will be slow and slower. By the time we go back to school – then hit the holidays – buyers will find lending scarcer, tax credits expired and housing prices still falling. They will be kicking themselves – and perhaps the REALTORS – for having missed the call in April on the housing bottom.