The striking Case-Shiller regional charts shown below, courtesy of MHanson.com, make Mark Hanson angry: "so, 2006/2007 was the largest house price bubble ever, but there is nothing to see here in 2017?" and sarcastically points out that "if this isn't a house price bubble, I would hate to see one."
His bottom line:
If 2006/07 was the peak of the largest housing bubble in history with affordability never better vis a’ vis exotic loans; easy availability of credit; unemployment in the 4%’s; the total workforce at record highs; and growing wages, then what do you call “now” with house prices at or above 2006 levels; worse affordability; tighter credit; higher unemployment; a weakening total workforce; and shrinking wages? Whatever you call it, it’s a greater thing than the Bubble 1.0 peak.
Below are some further observations and "red-flags" from Hanson on Peak Housing, after the latest new home sales data:
- Sharp downward sales revisions for past 3-months.
- Huge downward price revisions for past 3-months, lower by 10%, 5% and 3%, respectively, exactly as I predicted on last month's release.
- Builders maxed out on pricing power; Med & avg prices flat for 2-years.
- The all-important Southern Region was flat YY; the South makes up over half of all sales in the nation, and drives builder demand and profits.
- 100% of the June YY sales gain came from the Western Region, which doesn't jibe with the weak price performance and will likely be revised lower next month.
- Income required to buy the avg priced builder house is at historical highs and has completely diverged from the multi-decade trend line.
- Historically low growth & rebound relative to resales suggest "lack of supply" meme in the Existing Sales market is over-stated.
As he says, "Peak builder is here."
Finally some other quantitative and qualitative observations from the housing guru:
1) New Home Sales "up to" 1995 levels after $15 TRILLION in debt and Fed liquidity aimed largely at the sector.
2) Builder pricing power largely flat for 2-years.
3) Income required to buy the average priced builder house has completely diverged from the multi-decade trend line. This obviously explains why sales are only at 600k SAAR now vs 1.2 million in Bubble 1.0. Reversion to this mean will occur...either thru a sharp rise in income; new exotic loan programs, which make payment less; or house prices dropping.
5) It's too bad the public isn't as euphoric about buying as the builders think they are.