Most Popular
1. Banking Crisis is Stocks Bull Market Buying Opportunity - Nadeem_Walayat
2.The Crypto Signal for the Precious Metals Market - P_Radomski_CFA
3. One Possible Outcome to a New World Order - Raymond_Matison
4.Nvidia Blow Off Top - Flying High like the Phoenix too Close to the Sun - Nadeem_Walayat
5. Apple AAPL Stock Trend and Earnings Analysis - Nadeem_Walayat
6.AI, Stocks, and Gold Stocks – Connected After All - P_Radomski_CFA
7.Stock Market CHEAT SHEET - - Nadeem_Walayat
8.US Debt Ceiling Crisis Smoke and Mirrors Circus - Nadeem_Walayat
9.Silver Price May Explode - Avi_Gilburt
10.More US Banks Could Collapse -- A Lot More- EWI
Last 7 days
US Presidential Election Cycle and Recessions - 18th Mar 24
US Recession Already Happened in 2022! - 18th Mar 24
AI can now remember everything you say - 18th Mar 24
Bitcoin Crypto Mania 2024 - MicroStrategy MSTR Blow off Top! - 14th Mar 24
Bitcoin Gravy Train Trend Forecast 2024 - 11th Mar 24
Gold and the Long-Term Inflation Cycle - 11th Mar 24
Fed’s Next Intertest Rate Move might not align with popular consensus - 11th Mar 24
Two Reasons The Fed Manipulates Interest Rates - 11th Mar 24
US Dollar Trend 2024 - 9th Mar 2024
The Bond Trade and Interest Rates - 9th Mar 2024
Investors Don’t Believe the Gold Rally, Still Prefer General Stocks - 9th Mar 2024
Paper Gold Vs. Real Gold: It's Important to Know the Difference - 9th Mar 2024
Stocks: What This "Record Extreme" Indicator May Be Signaling - 9th Mar 2024
My 3 Favorite Trade Setups - Elliott Wave Course - 9th Mar 2024
Bitcoin Crypto Bubble Mania! - 4th Mar 2024
US Interest Rates - When WIll the Fed Pivot - 1st Mar 2024
S&P Stock Market Real Earnings Yield - 29th Feb 2024
US Unemployment is a Fake Statistic - 29th Feb 2024
U.S. financial market’s “Weimar phase” impact to your fiat and digital assets - 29th Feb 2024
What a Breakdown in Silver Mining Stocks! What an Opportunity! - 29th Feb 2024
Why AI will Soon become SA - Synthetic Intelligence - The Machine Learning Megatrend - 29th Feb 2024
Keep Calm and Carry on Buying Quantum AI Tech Stocks - 19th Feb 24

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

‘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.


© 2005-2022 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