Best of the Week
Most Popular
1.SNP Offers Labour Deadly Death Embrace Alliance, Holding England to Ransom, Destroy UK From Within - Nadeem_Walayat
2.Gold And Silver – Most Widely Used Currency In Western World? Stupidity - Michael_Noonan
3.Election Forecast 2015 - Coalition Economic Recovery vs Labour Collapse - Nadeem_Walayat
4.Election Forecast 2015 - Debates Boost Labour Into Opinion Polls Seats Lead - Nadeem_Walayat
5.Why are Interest Rates So Low? Ben Bernanke, Confused as Ever, Starts His Own Blog to Prove It - Mike_Shedlock
6.Leaders Debate Election 2015 - Natalie Bennett Green Party Convincing Anti-Austerity More Debt Argument - Nadeem_Walayat
7.Labour Economic Collapse vs Coalition Recovery - UK Election Forecast 2015 - Video - Nadeem_Walayat
8.China’s Stock Market Mania; How High can Red-chips Fly? - Gary_Dorsch
9.Gold and Misery, Strange Bedfellows - 31st Mar 15 - Dan_Norcini
10.Ed Miliband Debate Election 2015 Analysis - Labour Spending, Debt and Economic Collapse - Nadeem_Walayat
Last 5 days
Impending Stock Market Top - Trend Forecast Summer 2015 - 26th Apr 15
Desperate Stock Market Bubble Thinking Takes Hold on Wall Street - 26th Apr 15
Stock Market Back into The Bear Suits - 26th Apr 15
One Stock Market Where You Haven't Missed the Bull Market Boom Yet - 26th Apr 15
Migrant Crisis - Europe Has Completely Lost It - 26th Apr 15
What Obama's First-Ever Energy Review Missed - 26th Apr 15
Sheffield Hallam Election Battle 2015, School Places Crisis, Can Nick Clegg Win? - 26th Apr 15
Stocks Bull Market Looks to Resume - 25th Apr 15
Gold And Silver - The U.S. Is A Corporation. Precious Metals Stand In The Way - 25th Apr 15
When the Nuclear Money Option Fails - 25th Apr 15
The War on Cash Special Report - 25th Apr 15
China Economic Slowdown Story - Why “Didi Dache” Is a Phrase You Need to Know - 25th Apr 15
The Trans-Pacific Partnership and the Death of the Republic - 25th Apr 15
Stock Splitting Caused the Stock Market Crash - 25th Apr 15
China Stock Market Parabolic Mania’s Global Risk - 24th Apr 15
What Will Happen to You When the U.S. Dollar Collapses? - 24th Apr 15
Why 2 of U.S. Dollar's Recent Bottoms Have 1 Thing In Common - 24th Apr 15
UK Economy Debt Timebomb Will Explode After Election - 24th Apr 15
Are Gold Stocks the Cheapest Ever? - 24th Apr 15
God, the Stock Market and Pascal's Wager - 24th Apr 15
Greedy Insurers Are in for a Nasty Surprise – Positioning You for Big Profits - 24th Apr 15
Four Things Missing From Obama’s First-Ever Energy Review - 24th Apr 15
How to Grow a Regenerative Medicine Industry - 23rd Apr 15
Stocks and Bonds Seven Year of Negative Returns; Fraudulent Promises - 23rd Apr 15
The Existential Danger To The Euro Is Elections - 23rd Apr 15
Stock Market No Clear Direction As Investors React To Quarterly Earnings Releases - 23rd Apr 15
Is China The Next United States? - 23rd Apr 15
U.S. Oil Glut: How High Can It Go? - 23rd Apr 15
Distorted Financial System Expect Deflation, Inflation And Hyperinflation - 23rd Apr 15
What McDonald’s Corporate Earnings Report Is Really Telling You - 23rd Apr 15
Gold Price Forecast to Become Priceless - 23rd Apr 15
FDIC Plots a Bank Heist Involving YOUR Accounts - 23rd Apr 15
$GOLD Price Year 2007 Again - 23rd Apr 15
Stocks Bubble - The Spread between Stock Prices and GDP is Blowing Out - 23rd Apr 15
Ukraine War - When Did We All Become Murderers? - 23rd Apr 15
Libya Crisis - EU Leaders Are Indicted for Nazi-Style Crimes against Humanity - 22nd Apr 15
Why Alternative Energy Isn’t Taking It on the Chin Despite Low Oil Prices - 22nd Apr 15
Bill Gross - German 10-Year Bunds Short of a Life Time - 22nd Apr 15
How to Profit from the Drop in the Oil Price - 22nd Apr 15
The U.S. Dollar's Move Is More Dangerous than You Think - 22nd Apr 15
Apple Watch Means Apple Will Become Worlds First $1 Trillion Stock - 22nd Apr 15
Half a Stocks Bubble Off Dead Center - 22nd Apr 15
They Said Go to College - Learning to become Debt Slaves - 22nd Apr 15
Best Cash ISA 2015/16, Instant and Fixed Savings Interest Rates, New Flexible Withdrawal / Deposit Rule - 22nd Apr 15
Unsound Banking: Why Most of the World's Banks Are Headed for Collapse - 21st Apr 15
Bitcoin Recent Low Price Volatility Might Be Deceptive - 21st Apr 15
Currency Wars Back As Russia Buys Gold - One Million Ounces in March Alone - 21st Apr 15
The Greece 'Grexit' Issue and the Problem of Free Trade - 21st Apr 15
Why Europe Lets People Drown - 21st Apr 15
Wealth Destruction for the 99.9 Percent - 21st Apr 15
SNP Publish England's Suicide Note as Pollsters Still Forecast Labour-SNP Election Disaster - 21st Apr 15
Characteristics of Extremely Over-Indebted Economies - 21st Apr 15
Trader Education Week -- a Free Event to Help You Learn to Spot Trading Opportunities - 21st Apr 15
Gold & Silver Alert: Silver Stocks’ Signal - 20th Apr 15
Now is the Time to Buy Resource Stocks, Especially Gold Equities - 20th Apr 15
DJ Transportation & Utility Averages Suggest Stocks Bull Market Is Over - 20th Apr 15
Crude Oil Price Bull Market Hope - 20th Apr 15
Stock Market Bears Get Slaughtered Despite Greece Counting Down to Grexit Financial Armageddon - 20th Apr 15
The Rise of the Paper Machines - 20th Apr 15
Gold and Silver Inflection Point - 20th Apr 15
SP500: A Butcher's Stock Market (Chop Chop Chop) - 20th Apr 15
Are Stock Market Bears Slowly Gaining Control? - 20th Apr 15
Sugar Commodity Price Bear Rally - 19th Apr 15
Avoid the Spread of the Stock Market "China Syndrome" - 19th Apr 15
Stock Market Going Nowhere Fast - 19th Apr 15
An Easy Way to Profit From the Two Biggest Trends in the Stock Market - 19th Apr 15
No Scripture Is Divine, Authentic and Beyond the Creation of the Human Brain - 19th Apr 15

Free Instant Analysis

Free Instant Technical Analysis


Market Oracle FREE Newsletter

The War on Cash!

‘Unexpected’ U.S. Home Price Decline is a Serious Reason to Worry About Economy

Housing-Market / US Housing Dec 30, 2010 - 05:26 AM GMT

By: Mac_Slavo

Housing-Market

Best Financial Markets Analysis ArticleThe Standard & Poors/Case-Shiller index’s most recent report shows that home prices across the country are sliding. For economists, this is yet another unexpected decline. For readers of non-mainstream news, analysis and opinion, this was to be expected.


Robert Shiller, co-creator of the index joins the Wall Street Journal and shares his perspective:

It’s still only a few months we’ve seen these declines. So, it’s not clear that we have a downtrend.

But, if home prices continue on this pace down, I think the economy has serious reasons to worry.

According to our survey, forecasters are expecting on average - these are professional forecasters - prices will be up 7% by 2014. So, that’s not bad, but it’s not great either. On the other hand, a good share of those forecasters are predicting declines. I think the outlook has become steadily more pessimistic over the last few months. With today’s announcement our professional forecasters are going to be a little more pessimistic.

The same professional forecasters who didn’t see the collapse of 2008 coming are being relied upon now to tell us what is coming next. Like Ben ‘the sub-prime crisis is contained’ Bernanke, the mainstream forecasters out there are touting the group think line. No one wants to step outside of the group and tell us how it really is - even if they know what’s coming.

Luckily, we don’t live in the mainstream bubble, so we don’t have a problem being called fear mongers. In reality, we’re just reality mongers.

And the fact is, that the home price decline has a long way to go.

  • We will not return to the home price tops of 2006 for at least a decade - and that’s being optimistic.
  • We will see further deterioration in home prices from here - in real terms, likely in nominal terms as well. Regardless of how much money the Federal Reserve prints and how much value the US dollar loses, the relative price of a home compared to assets like gold, food and energy will go down. End of story.

In May of 2010 we responded to a report which showed the home construction was up. In that response we penned the reasons for why the real estate market will not only not recover, but will continue to decline - significantly. Rather than trying to explain it in different terms, here’s what we wrote in May:

We have the government tax credit now expired, roughly 7 million plus foreclosed and delinquent shadow inventory homes that have not yet been reflected on banks’ books, credit markets remain tight, mortgage rates will likely rise due to federal debt problems, millions of adjustable rate mortgages are resetting interest rates higher over the next two years, and home prices in many areas have resumed their downward slide.

While today’s news may seem positive, one must consider the dynamics of the entire real estate market before rushing to judgment about a recovery in real estate.

Our view since the Summer of 2009 has been that the bottom for real estate is not yet in, with average national home prices still well above the historical, inflation adjusted price of around $110,000 (going back 100 years).

This is a credit contraction and the pendulum is now swinging in full force from the top of the bubble to the extreme opposite. If history is any guide, corrections are equally as violent as bubble formations, if not more, because the momentum in the other direction can be ferocious and very fast. This means that the pendulum will not simply revert to the mean, but will likely overshoot in the opposite direction.

Since the housing bubble’s peak, which reached an average national home price of around $200,000, we’ve seen real estate prices deflate nearly 20% to about $165,000. So, just to revert  to the historical average of around $110,000 housing prices would need to slide another 30% from here.

Over the last twenty years the Japanese real estate market, blown from an easy money bubble and the expectation that real estate will never go down because people keep being born, has lost over 70% of its value (inflation-adjusted).

We can expect the same in the US. That means we’ve got about 30% to 50% more to go in terms of real estate declines. It sounds crazy, yes. But, it’s been a pretty crazy last couple of years, as well. So crazy that had you predicted ten years ago that we’d see a detonation of the real estate bubble, the insolvency of every major banking institution in the country and the trillions in bailouts that followed you would have been called a doom and gloom quack.

Biflation is the order of the day, where debt-based assets like homes will continue to lose value, while essential goods like food and energy will continue to rise.

When we talk about tanking real estate prices going forward, it should no longer be ‘unexpected.’

Video Interview with Robert Shiller and the Wall Street Journal:

By Mac Slavo
http://www.shtfplan.com/

Mac Slavo is a small business owner and independent investor focusing on global strategies to protect, preserve and increase wealth during times of economic distress and uncertainty. To read our commentary, news reports and strategies, please visit www.SHTFplan.com

© 2010 Copyright Mac Slavo - All Rights Reserved
Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


© 2005-2015 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

Free Report - Financial Markets 2014