This page has been archived and commenting is disabled.
When The Current Housing Bubble Finally Bursts
Submitted by Charles Hugh-Smith of OfTwoMinds blog,
Bubbles are followed by echo-bubbles, and the bursting of the second bubble ends the speculative cycle.
If we have learned anything in the past 20 years of massive asset bubbles and equally massive declines when the bubbles finally pop, it's this: those caught up in the expansionary phase of the bubble cannot believe the bubble that's rewarding them so richly could actually burst.
This psychology of mass delusion now dominates housing, stocks and bonds: not only is this not a bubble, the expansion will continue forever.
History, however, suggests otherwise: all bubbles burst, period. With that in mind, I've made a few notes on a chart of the Case-Shiller Home Price Index. This chart displays both the nation Case-Shiller index and the San Francisco Bay Area index.
Over the long-term, housing has tended to rise about 1% annually above inflation. According to the Bureau of labor Statistics, $1 in pre-bubble 1997 is $1.46 in 2015 dollars. A 1% gain over the past 17 years adds 18.4%.
If we add inflation and a 1% annual gain, we find a historically justified target around 110 on the Case-Shiller index.
One of the more striking characteristics of bubbles is their symmetry: if the expansionary phase took 3 years, the bursting phase also takes around 3 years to complete.
The last housing bubble took about 3 years from peak to trough, and this provides a baseline projection for the decline of the current housing bubble, which is shaping up as a classic echo-bubble: very much like the previous bubble, but of slightly lower magnitude.
The projected decline over the next three years to the 110 level is the best-case scenario. Analyst Mark Hanson made a very persuasive case for a much sharper drop when the current housing bubble pops: Mark Hanson Is In "Full-Blown, Black-Swan Lookout Mode" For Housing Bubble 2.0.
In essence, Hanson suggests that the narrow base of the current bubble expansion--all cash buyers (speculators, private-equity funds, overseas oligarchs and corrupt officials, etc.) and marginal borrowers relying on highly leveraged FHA and VA mortgages--will collapse much quicker than the previous bubble, which was inflated by a much larger base of market participants.
Bubbles also have a habit of overshooting when they finally burst. the Federal Reserve acted quickly to re-inflate the housing bubble by lowering interest rates to near-zero and buying over $1 trillion of mortgage-backed securities. Given the narrow base of the current bubble, these tricks will not work should the Fed attempt to inflate Housing Bubble 3.0
In general, bubbles are followed by echo-bubbles, and the bursting of the second bubble ends the speculative cycle. There is no fundamental reason why housing could not round-trip to levels well below 100 on the Case-Shiller Index when the current bubble finally bursts.
If Mark Hanson's analysis is prescient, it may not require 3 years for the current housing bubble to implode; 2 years (2017) might be more than enough time for the speculative excesses to evaporate.
As I have noted before, when the herd turns, risk-on bids disappear, and the bottom drops out of the market much faster than participants believe is possible.
»
- 33795 reads
- Printer-friendly version
- Send to friend
- advertisements -
...."if it keeps on rainin...the Levy's gonna break...."
...When The Levee Breaks I'll have no place to stay.....
If they ban cash and impose negative rates, the last housing bubble will look like nothing, it will cause a super bubble in real-estate.
Maybe it has already burst...and the dollars are just loosing purchasing power.
Long fiat strawbailout homes!!
RIPS
There is way more property off market in grey areas than the 5%. This article indicated 7 Million properties have questionable liens tied to them.
https://livinglies.wordpress.com/2015/05/21/next-week-on-the-neil-garfie...
be still my heart.
I would lmfao if that would occur. Justice delayed is justice denied.
Miracles can occur.
RICO case against B of A for foreclosing on properties that they do not own.
https://livinglies.wordpress.com/2015/05/18/6th-circuit-reverses-trial-c...
Doubtful, as nobody will actually lend at negative interest rates. Even if they ban cash. They'll buy practically anything else other than negative yield bonds. Gold. Stocks. etc.
Well considering they already do it in Europe even before banning cash I would not hold your breath, there has even been mortgages with negative yeilds over there. Someone bought them, and again this is before they ban cash, imagine the investment landscape after. PS they may just ban gold and yes there would be a bubble in stocks as well.
I am amazed at what people buy now so I will try not to be in the future but that probably won't happen.
Something to ponder: what happens to a popping bubble when there is no liquidity?
QUESTION: "Something to ponder: what happens to a popping bubble when there is no liquidity?"
ANSWER: One big dust fart.
"At last," sobbed Little Miss Yellen "a beautiful bubble all of my very own!".
"I'm going to hold it oh so close, and never let it go."
Yeah, when the bubble pops, she'll sob. But it won't be long, and he'll be a'printin'. Thanks, Mr. Yeller.
levee.
who is paying these prices if incomes are stagnant, job growth minimal, real estate taxes skyrocketing, and demographics indicate boomers want to sell to a diminished group of buyers?
I am totally confused.
Good question: http://si.wsj.net/public/resources/images/BN-GR740_homeow_G_201501291114...
Blackrock
Top 5-.01% mostly chinese buyers.
precisely. that's why this time is different
Get that home mortgage rate locked in before rates go up, up, up .............
HAHAHA................
Actually the long-term return for housing is not 1% real, but 0% real. So take off another 20%.
My father bought a house for $30K in 1950 and sold it for $150K in 1980. He had long paid off the mortgage. That same house with a little reno sold for $1 million 2 years ago. Factoring out the cost of having to actually live in ANY house he might have owned ( the cost of living, excluding the homeless ) he did well. So, longer term is really longer term when it comes to value. The population in the US is increasing even tho boomers are retiring. The more successful upper 20% or so of people are still going to drive up prices OVER THE REAL LONGER TERM, imo : )
This is why I've more or less made peace with not being able to trade down and out of the burb palace I got into at the nadir of the previous bubble strictly as a proxy for school district quality. The alternative was to spend $180K min for private school. But it'll be impossible to sell 2018 and on for a good 4 or 5 years, and even then I doubt another bubble is possible -- not with entitlements crashing in that 2022-2025 window. The debt will be easily managed and no college debt will be permitted, but spending thousands on moving costs out of sale proceeds won't be an option. Maybe I'll rent rooms to Millennials.
Charles, please splurge on your graphics. There is just something about these marked up public domain charts that debases your point from the get-go.
And that is a steep drop you're pencilling in for US housing...effectively sending the US back down the rabbit hole. You think the banks will release the shadow inventory if this type of price decline is actually a risk. Hint: no, they'll sit on owned/repo'd inventory until later in the cycle.
The problem is that people won't believe any of it without the FRED stamp on it. When people are confronted with data that doesn't match their perceptions they attack the source. The FRED stamp says this is 'offical government data' to people or at least they can be ridiculed for not knowing what FRED is when they do an attack the source. A little note on a plot might work, but people like to attack messengers when they don't like the message.
"History, however, suggests otherwise: all bubbles burst, period."
History has yet to see the outcome of central banks going Full Retard and printing trillions of dollars out of thin air.
Reread your history book.
"We are all 'greater fools' now."
People don't understand that they can get better place and weather with less than San Francisco price.
Shadowstats.
http://www.shadowstats.com/article/special-commentary-2015.pdf
Similar chart, different results @ index of 120 for 2015. Graph 44.
Annual consumer inflation at 5%+ during the same time period. Graph 41.
Feels more accurate in the grocery line.
John Williams numbers do feel a lot more real across the board because he does not used the "2 + 2 = 7" math that the .gov uses in their calculations.
Not sure myslef... but his chart was San Francisco, not entire US. Note my name.......
"...overseas oligarchs"
I always wondered - in the lexicon of American socio-economico-politico speak, do we ever refer to the Warren Buffet types here as 'oligarchs', or is that term reserved only for those exclusively not U.S. citizens...?
Bubbles always burst, some quite violently. The housing bubble is just a small bubble inside the largest credit bubble in history that has engulfed the globe. This Anatomy of a Bubble explains why everyone needs to worry...
http://www.globaldeflationnews.com/anatomy-of-a-bubble-how-the-federal-r...
No one wants to do anything anymore, we just want to invest.
Where is the next bubble?
Exactly, Batman.
Labor is trash; capital is king!
"BUY NOW! Don't be priced out of the market," is still thier mantra?
Check out Melbourne Australia.....the prices will make your head spin.....
Keep in mind this is the suburb i live in....west of Melbourne and generally referred to as a drug fuelled shit hole.....
Your going to love the value on the dog box apartments.....get in NOW!
http://www.realestate.com.au/buy/in-footscray,+vic+3011/list-1
just got one of these dog condos in playacar , ( Drug filled , scuba babeland, 50cent taco locos and tropical party shit hole)
1500 ft penthouse 3 bedroom 2 bath , fully furnished , 140k
FUCKING AMAZING WHAT a little SEAWEED CAN DO !
and what can i say..
Australian real estate is nuts mate!
I hear housing is still pretty affordable in Dubbo, though.
Ha...ha....ha
your gonna love this one.....just saw it..........
http://www.realestate.com.au/property-duplex+semi+detached-vic-footscray-119825987
NIRP - get ready for it to massively pump the housing market worldwide. This is a mad rush for assets.
This is also the reason the Western States are ready to auction off their land use to the biggest banksters.