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Is The Echo Housing Bubble About To Burst?
Submitted by Charles Hugh-Smith of OfTwoMinds blog,
Echo bubbles aren't followed by a third bubble.
Speculative bubbles that burst are often followed by an echo bubble, as many participants continue to believe that the crash was only a temporary setback.
The U.S. housing market is experiencing a classic echo bubble. Exhibit A is the Case-Shiller Housing Index for the San Francisco region, which has surged back to levels reached at the top of the first bubble:
Exhibit B is the Case-Shiller 20 City Housing Index, which has notched a classic Fibonacci 62% retrace of the first bubble's decline.
Several things pop out of the Case-Shiller San Francisco chart. One is the symmetry of the two stages of the initial housing bubble: the first leg rose 80% from 1997 to 2001, and the second leg also rose about 80% from 2003 to 2007.
There is also a time symmetry, as each leg took about five years.
The echo bubble has now inflated for roughly the same time period, and has almost fully retraced the 45% decline from the 2007 peak. Though recent buyers may hope this bubble will be different from all previous bubbles (i.e. it will never pop), history suggests the echo bubble will be fully retraced in a sharp decline lasting about two to three years, in rough symmetry with the collapse of the first housing bubble 2008-2010.
The broader 20-city Case-Shiller Index reflects the same time symmetry: the echo bubble and the initial housing bubble both took about the same length of time to reach their zenith. Once again, we can anticipate a symmetrical decline that roughly parallels the 33% drop from 2007 to 2009.
There is one key difference between the first bubble and the echo bubble: echo bubbles aren't followed by a third bubble. Markets often give second-chances, but they rarely offer third-chances.
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Time to import more Chinese with money......
Guy at Echo Point - "Helloooooooooo"
Reply - "Fuuuuck the Feddddddd"
the oil bubble has burest.. so why not...
Morgan Stanley: Recent Oil Crash Is The Worst In Over 30 Years: $USOWithout financing whats the value of a house? Or Car?
RIPS
Price is described by denomination. Value is subjective.
Price is what you pay, value is what you get.
I will pay you $1,000,000 for your house tomorrow if you give me a hamburger today.
This is clearly proof that central planning works.
looks like downside fun to me
Only two factors are holding up house prices, low interest rates and Chinese demand. Interest rates will be going up soon, and it looks like the Chinese might have to repatriate some of their laundered money and thus leave the US housing market. US investors used to be players, but most of them quit buying last year when prices went past bubble levels.
Maybe it is, or maybe they are about to reintroduce ninja loans. No one can afford at these prices, sure, but there are probably more tricks up the government's sleeve.
yes !! ninja and a 100 year mortgage will work !
And I always thought it funny when people in their 60's were allowed to take out 30 year loans.
Say Wah?
Why? most people only stay 5 yrs in the home.
Gov is not on the hook for 30 with low rate like I have.
I will pay off, sell or die before.
The WageSlave borrows money like a Ninja!
I've already heard radio adds for home loans with not proof of employment or tax returns needed.
#41
They've been doing it with cars for a while now.
"no credit? No Problem! Everyone is approved!"
Ah, it sure is Awesome that GM is now a government backed entity.
Heads they win, tails I lose.
Time to leave the country.
meh.... Janet will just lower interest rates to fix this problem. Krugman will tell us that we need a bond market bubble to replace other bubbles.
yep, nirp for everyone can totally fix this.
Yes and Obama will help by buying minorities housing in upscale communities. Of course this won't include Hollywood or The Hamptons. If you live in a city, get out now.
It's getting close to NIRP time.
The Boston area seems to be booming/safe...
the 250,000 h1b visa recipients who seem to have moved into the Greater Beantown area in the past 10 years may have a little to do with it.
p.s. I don't believe for a second that State Street et al. can't find people with the skills they need in metro Boston.
Anecdotally - I live in a nice area. 4 houses near me for sale. Nothing selling and have been on the market for nearing 45-60 days now. Sure feels toppy.
Anecdotally - homes in north Texas are selling within hours of listing. Very hot market, with valuations up 25% in past two-three years. We had no "bust" in '08, just steady until last year, then BAM.
Interesting. I am thinking more people fleeing the East Coast, heading your way. Can't say that it is not a common topic in my house.
Only 4?
I can drive down some roads in my county and see 10-12 out of perhaps 50, with 4-6 being average.
Waterfront homes are taking a beating where I am, and we have A LOT of those (Chesapeake Bay + numerous rivers, coves, inlets, etc).
My neighborhood typically has few houses for sale if any. Having 4 for sale right around me is odd (there are more down the street). And seeing them not move is even more odd. I think people are sensing the market is topping (on both sides). Explains the spike in listings and the resulting sound of crickets chirping.
Last month though, in a less desireable (but more affordable area) a friend of mine sold his house straight away. Within a week I think. Went all cash and is planning to rent for awhile. I have a feeling he is going to do well on that bet.
I went to zillow to look at all the foreclosures in my suburb. 66. some recovery. I follow the non foreclosures too and they have definitely stopped selling real quickly.
went to a more rural area about 40 minutes away and there are over 100 foreclosures. it's attractive, but it's a real pain to drive that far when you're used to five minutes of commute.
we have houses in our neighborhood that aren't moving either. in the 11 years we've lived here this is the slowest market movement we've seen.
If a house is not selling in 40-60 days, the price is too high for the market.
If it's a nice place it should sell in 30 days or less if it is priced correctly.
Charles is overly optimistic. This pig is going to retrace 95% of the gains since 1980. BOOK IT!
+++
Stated differently: A near complete retracement of the 30+ year (easy) credit cycle.
Gotta say it's been quite discouraging - nay, defeating - to see the noxious, mindless horde constantly BTFDing real estate, stocks, and anything else that fits neatly with the Fed's and other central banks' "narrative" get lavishly rewarded time and time again while my BTFDing of PMs, mining stocks, and VIX has crushed my portfolio. I've burned through a few bullets but still have plenty of ammo in reserve....my day to shine has to be just around corner, right?
It does seem like they get all the reward, doesn't it? It is aggravating, but I take a longer view. They may seem to be doing well, right now, but if you believe the Ponzi WILL end, then you know that all that paper wealth won't be worth squat anyway.
The only way NOT to lose is to refuse to play. Get your goodies as much 'out of the system' as possible, then don't look back. So many DO get out, then they see the markets going up, up, and even though they KNOW it's all fake, they weaken and jump back in, afraid to lose out.
Then they lose it all.
I think you have to play both sides against each other because you just know. Alot of alternative info is put out by people hoping to sell yu something...gold, seeds, etc. Likewise, TPTB are putting out info hoping to sell you faith in their system. Wise to have some gold, some nice land, cash, stocks, bonds, etc Because we dont really know whats going to happen. It will end but that might be 50 years down the line, in the meantime you might lose your shirt
Well, I thought about selling the old homestead while prices are jacked back up. Then deposit the money in the bank and wait for the inevitable crash.
But, then I realized that they'd just confiscate my cash. Er, bail me in. And I'd be left with no home and no cash. So, I think I'll just hold on to the house, wait for the crash, and then stop making payments. oh, and take all my cash out of the bank. Then I'll have all my cash, AND their house.
FU Bankers.
I sold mine this summer so cal. made a killing. If the market does drop I will pay cash for a house with land and water. The panic will follow by then I shoud be set in my newhouse payed in full with some pm's too pay my taxes. Ofc I have some led and 1 years food storage in case things get nasty.
I love the juxtaposition.... ad next to the story on ZH reads..."Flipping Houses, Get this Best Selling Real Estate Book Free!"....
I dunno about a crash. There are a lot of dynamics at play in various housing markets. For instance Baby boomers retiring to warmer states, no income tax states vs. Welfare states like California, booming cities like Nashville vs. Detroit, you gotta follow the money. We are also seeing a lot of foreign investment from China and South America example Miami. I've been hearing about the collapse for quite a while. I think it will happen eventually. I think we will more then likely see hyperinflation and a collapse in value, but not in price...think Venezuelan housing market.
Yep. Just waiting for the implosion. It should be epic. I am not buying nothing right now.
Please forgive the off topic post. Don't know where else to post this. I just got around to reading the sharing of personal information form the company that sponsors my IRA sends out. I think it's a standard form they all have to send out by law.
The item that caught my attention was "username/password".
Really?!?!?!?!
What's to stop someone from assuming my online identity and me getting blamed for it?
Does your disclosure form list username/password?
Am i just being paranoid?
Is this the government getting ready to steal our IRAs and not leave a paper trail?
Pleaze help - I want to sleep tonite!
Thx in advance
If you ever want to sleep again, do not participate in ANYTHING financial, or ANYTHING that reveals even your name to corporations or government.
We are nearing the day when both will STEAL EVERYTHING they can FROM EVERYONE they can. This means bank bail-ins, stock bail-ins, bond bail-ins... everything that they hold, including your savings and retirement accounts.
To be sure, some of them will deposit some new-fangled piece of paper "in payment"... one you cannot redeem for anything real, one that will become worth ZERO by the time you can redeem it. But the result is the same.
THE CLOUDS OF LOCUSTS ARE COMING.
And they are ALL large corporations and governments.
The top will be the liar loans with balloon payments like 2006.
Secretary of HUD Julian Castro said there are so many people with good credit who want
to buy but can't get loans and he wants to fix that. (Mexican gardners looking for million
dollar loans)
Dollar has lost how much of its value since 2006?
Min wage in California has gone up 30% since 2007.
We ain't there yet.
Bigger Bubble Ahead
Looks like Chinese RE investors were taken hostage at the Shanghai stock market.
Just sold in Austn. Crazy people bought our house for an obscene amt. 50% more than paid for. Stupidity abounds
Just curious, Charles.
Do you have a list of all the prime bubbles that were followed by echo bubbles or have you only spotted a repeat of the housing bubble and are looking for others?
MY observation is that the first housing bubble was driven by sub-prime buyers and their mortgages. A bottom up bubble. As the cheapest buyer pushed the cheapest owners up to the next to cheapest level and so on and so forth until the half million dollar owners were being offered $550,000 and started looking for $600,000 homes.
This occurred during a normal economic phase. Investors bought houses to live in and occasionally flip. Real estate investments competed with stocks and bonds which paid expected dividends and interest. Investors also parked funds in CDs and Money Markets and got decent returns.
Today's 'echo' bubble is definitely not bottom up. There's nothing sub-prime about it. Except maybe for all that QE money that is now flowing into it. Real estate brokers say that many of today's buyers, buy to turn around and rent their property for income. They are not in the stock, bonds, CDs or money markets.
They are landlords
This housing bubble may indeed be an echo bubble, but because of the differences in its creation, its demise will be completely dissimilar.
"its demise will be completely dissimilar"
As the economy continues to crash, many of those renters will become squatters and the newly-minted landlords will realize that collecting the rent doesn't just mean going to the mailbox at month-end. This is very similar to the last time when the economy crashed and the subprimers couldn't afford their mortgage payments, except now it will be rent payments. So the demise is still due to the economic crash, same as always.
You're absolutely correct. The demise will be identicle. I meant the "causes of the demise" will look dissimilar.
It's been said that Bernanke created money out of thin air.
I think we are all on the verge of seeing our money return to the thin air from whence it came.
"There is one key difference between the first bubble and the echo bubble: echo bubbles aren't followed by a third bubble."
It sure feels to me like stocks are currently in a third bubble.
While the appreciation in SF is especially unsettling, a bubble is characterized by a significant deviation from fundamental valuations. That is, prices unwarranted by the underlying fundamental drivers. In real terms, prices have only increased around 7% per year on average since the trough (~ 35-40%). While definitely higher than the US-City average, it isn’t indicative of a bubble yet. Moreover, there are better fundamentals sustaining the increases this time around. Namely, significant corresponding increases in population and personal income that in turn imply a much more sustainable valuation. The population is increasing during this cycle and the ratio of price to income is significantly lower.
That being said, the market may be modestly overvalued, but to go about declaring a second bubble about to burst based on the nominal increases is unwarranted and misleading. Bob Shiller recently wrote an article stating that housing remains irrational, while that may be the case I don't think we are anywhere near the levels of the previous bubble as this article suggests.