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Why 95% of Traders Fail

Peter Schiff U.S. Housing Market, House Prices Bubble Warning

Housing-Market / US Housing Aug 30, 2014 - 12:36 PM GMT

By: Nadeem_Walayat

Housing-Market

Peter Schiff recently made another appearance on RT News, once more warning that the U.S. Housing market is a bubble primed to burst as speculator investors will be forced to sell into a market without any buyers.

"I think this is a bubble.

I think speculative buyers are leaving the market ands there is no one to fill the void because the real buyers are absent and if you look at the recent home statistics the percentage of homes bought by first time buyers is at a record low and in fact home ownership amongst individuals is at generational lows so prices have to come down dramatically from here before real buyers can actually afford to buy all the properties that have been bought by speculators, and at some point the speculators if they cannot collect enough rent to cover the cost of ownership they are going to be selling these properties, and look out below because when they put these properties up for sale, again there are no buyers anywhere near the current prices."


(RT News Video - 4 mins in)

However the problem is that this is just the latest in a near continuous stream of bearish US housing market bubble imminent collapse mantra for the DURATION of this current 2 year+ bull market. For instance this is what Peter Schiff was warning of 18 months ago (April 2013).

Great Reflation Produces Mirage Of Recovery In Housing

By Peter Schiff - concluding -

Of course the real risks in housing center on the next leg down, in what I believe will be a continuation of the real estate crash. We can’t afford to artificially support the market indefinitely. When significantly higher interest rates eventually arrive, the fragile market will again be impacted. We saw that movie about five years ago. Do we really want to see it again?

My response at the time in U.S. House Prices Accelerating, Fed Succeeding in Inflating New Ponzi Housing Market Bubble? was:

The bottom line is that the global central banks ar engaged in an inflation war as they competitively debase their currencies via unprecedented money printing to INFLATE asset prices which are LEVERAGED to inflation, this was true for the stock market in 2009 (as I wrote at the time) and is true today for housing markets as the fractional reserve banking system ensures that whatever the central banks print will be leveraged up by at least X10 and during the mania phase as much as by X90 which will be driving the next subprime mortgage market that will once more ramp up prices into the final euphoria phase, which means a LOT of inflation is yet to come, far beyond anything that the academic economists that populate the mainstream press can ever conceive of, as from what I see they are still obsessed with non existant deflation whilst the housing bull market juggernaut rumbles on as illustrated by one of the most popular housing market articles of recent days as published by Forbes magazine.

Meanwhile the smart money continues to pile into the US housing market as they snap up bargains (they have been doing so since at least mid 2012) whilst academics and mainstream journalists / salesmen, perma bears at blogosfear sites such as Zero Hedge, and off course cry babies who perpetually sit on the side lines always too fearful to commit, will as usual be found out to be wrong! Because they will NEVER understand what drives markets for the fundamental fact that they don't tend to put their own money on the line. Instead, I have put my own money where my mouth is and have committed 60% of my assets to the UK housing market on the basis of detailed analysis, just as I committed 30% to the stock market during 2009 because there is nothing that focuses ones mind to get it right than actually having a large chunk of ones wealth at risk.

House prices at the time had just started ticking higher in line with my 3 year forecast as of January 2013 (October 2012) - 12 Jan 2013 - U.S. Housing Real Estate Market House Prices Trend Forecast 2013 to 2016)

US House Prices Forecast Conclusion - As you read this, the embryonic nominal bull market of 2012 is morphing into a real terms bull market of 2013, with each subsequent year expected to result in an accelerating multi-year trend that will likely see average prices rise by over 30% by early 2016, which translates into a precise house prices forecast based on the most recent Case-Shiller House Price Index (CSXR) of 158.8 (Oct 2012 - released 26th Dec 2012) targeting a rise to 207 by early 2016 (+30.4%).

An updated graph for the case shiller US house prices index shows that the US housing market is trending in line with the forecast trend trajectory.

In my most recent article (U.S. Housing Bull Market Over? House Prices Trend Forecast Current State), updated what has transpired to date and warn not to be sucked in by prominent doom merchants during the ongoing slowdown in US house prices which rather than an end of the bull market was just an move towards under oscillation from over oscillation around a central trend of 10% per annum in preparation for the next surge higher during 2015 -

The latest U.S. house prices data released for May 2014 (185.3) shows that U.S. house prices are gradually converging towards trend forecast as I stated they would in January 2014, with prices now standing at forecast +5.3% (May data) deviation against +7.4% in January (Oct 13 data).

U.S. House prices momentum continues to slow from a peak of +13.9% for November 2013 data to now stand at +9.2% for May 2014 data which as I warned before has mistakenly prompted many to conclude that the U.S. housing bull market could be over when all that is taking place is that U.S. house prices are oscillating around a trend of 10% per annum, and as I indicated in January 2014, that I expected U.S. house price inflation to slow to UNDER 7% before the end of this year.

Furthermore US house price inflation looks set to continue to slow and could even slow to reach a trough of as low as 4% per annum house price inflation which whilst playing into the hands of the doom merchants, however in terms of the 3 year forecast will be of little significance.

Conclusion

Despite mainstream media persistent noise for an increasingly negative outlook for US house prices for a multitude of reasons, the perception of which will be backed up by a sharp drop in US house price inflation to as low as +4%, instead the reality is for US house prices just oscillating around the central trend forecast of 10% per annum as today's +5% resolves to -4% by the end of this year (2014). Whilst the long-term trend trajectory remains in tact for a rise of over 30% by early 2016.

Therefore I see no reason to undertake a more in-depth analysis at this point in time by delving into the fundamentals of the U.S. housing market such as looking at mortgage applications, housing starts, existing and new home sales data as I had been preparing to do, as the price has answered all of my questions in first trending towards convergence and then an under oscillation against my trend forecast that will sow the seeds for the next surge higher during 2015, thus U.S. home owners can look forward to at least another 18 months of a rising trend in house prices that I am sure will be accompanied by much gloom and doom commentary by clueless academics and salesmen, that I suspect will continue all the way towards NEW ALL TIME HIGHS for average U.S. house prices in a couple of years or so, which I am sure will trigger much end of the bull market double top commentary.

The bottom line is that the likes of Peter Schiff will be calling the end of the housing market bubble ALL THE WAY TO NEW ALL TIME HIGHS!

Source and comments:http://www.marketoracle.co.uk/Article47119.html

By Nadeem Walayat

http://www.marketoracle.co.uk

Copyright © 2005-2014 Marketoracle.co.uk (Market Oracle Ltd). All rights reserved.

Nadeem Walayat has over 25 years experience of trading derivatives, portfolio management and analysing the financial markets, including one of few who both anticipated and Beat the 1987 Crash. Nadeem's forward looking analysis focuses on UK inflation, economy, interest rates and housing market. He is the author of five ebook's in the The Inflation Mega-Trend and Stocks Stealth Bull Market series that can be downloaded for Free.

Housing Markets Forecast 2014-2018The Stocks Stealth Bull Market 2013 and Beyond EbookThe Stocks Stealth Bull Market Update 2011 EbookThe Interest Rate Mega-Trend EbookThe Inflation Mega-trend Ebook

Nadeem is the Editor of The Market Oracle, a FREE Daily Financial Markets Analysis & Forecasting online publication that presents in-depth analysis from over 1000 experienced analysts on a range of views of the probable direction of the financial markets, thus enabling our readers to arrive at an informed opinion on future market direction. http://www.marketoracle.co.uk

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 trading losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors before engaging in any trading activities.

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