Housing Market Collapse 2.0 Has Begun 

The following article by David Haggith was published on The Great Recession Blog:


A summer storm is gathering against the housing market all across the US. More than a year ago, I predicted the collapse of Housing Bubble 2.0 and then predicted as soon as the housing market collapse had begun that it would see temporary reprieve until the summer of 2018.

Well, that reprieve has ended … two months ahead of the schedule I suggested as an outlier. The storm clouds are now evident across the entire nation. More importantly, lightning is already striking in the nation’s healthiest housing markets.


New-home construction deconstructs the housing market


New-home-construction starts are down 12.3% nationwide to a nine-month low due to the largest single-month drop in more than year and a half. That is a huge sign of a nationwide housing market collapse when you consider that this is the time of year when housing is usually on a tear because weather allows construction everywhere. Instead, construction in the US is down … way down … EVERYWHERE.

While that nine-month period back to the last low in construction was merely propped up by hurricane and wildfire rebuilds, as I said it would be (see articles listed below), we’ve already hit the point where those necessary rebuilds (still happening) are not strong enough to overcome the more general housing decline that is overtaking the nation and many other nations. Significant to that point, housing starts fell in all regions of the country. Both single-family and multi-family housing construction are losing momentum.

As an even clearer sign of where we are headed in the near future, housing construction permits are also down … for the third count (third month in a row). So, the decline in permits is now a trend. While single-family permits saw a small gain of 0.8% in June, multi-family permits dropped 7.6%. June had been expected by economists to bring a rebound that didn’t materialize, setting a new trend firmly in place.

Mortgage applications also fell nationwide this week.


Emaciated housing inventory is wasting away even as sales slide


Fewer new homes being built will likely translate into shrinking inventory of new homes on the market in the months ahead. This broad-based decline comes in spite of that fact that everyone across the nation has been saying for over a year that inventory of homes on the market is skinny at best. So, it is skinny and now declining rapidly in health at a time when you would expect new construction to pick up in order to fill out the historically thin inventory of homes on the market.

Why is that not happening?

Even more important in terms of seeing where we are on the curve of the housing-bubble wave, real estate sales in some of the most robust markets, such as Seattle, have actually started to see decline: (Seattle was one of the slowest areas to decline during the last housing market collapse, one of the areas that fell the least during that collapse, and was one of the areas that was first to recover. So, if real-estate sales in Seattle are declining during Seattle’s only good months of weather, what does that say as a bellwether for the rest of the nation?)


Home buyers around many parts of Washington state had more choices and less competition during June, prompting some industry leaders to comment on “a feeling of change in the market.” “Inventory is up and demand has dropped,” reported Robert Wasser, an officer with the board of directors at Northwest Multiple Listing Service. That combination is “a pretty simple economic recipe for a softening market,” he added. Figures for June show a 5.2 percent improvement in the number of active listings system-wide, coupled with drops in the volume of pending sales (down 8.4 percent) and closed sales (down .07 percent) compared with a year ago…. “There was a feeling of change in the market this June and the numbers supported that feeling,” remarked John Deely, principal managing broker at Coldwell Banker Bain. He noted many brokers also reported an increase in properties going past their offer review date, more price reductions…. Sellers are becoming more active in the market as they sense buyers pulling back,” suggested George Moorhead, designated broker and owner at Bentley Properties. Improving supply, amarked increase in expired or cancelled listings, and market times almost doubling are factors he mentioned when describing the market as “more than just lackluster” with summer showing no sign of improvement. (Northwest Multiple Listing Service)


That is a tidal shift in the real-estate market because Seattle has been consistently one of the nation’s most vibrant real-estate markets. Other parts of Western Washington also saw a drop in sales and some are seeing a drop in inventory. Most important of all for gauging where we are on housing wave, for the first time in years, the median price of a single-family home in King County (where Seattle is located) actually dropped (down 1.6%), though prices in other areas of the state are still rising in spite of declining sales. (Homeowners always exhibit a lot of inertia toward dropping their prices even when sales decline.) Pending sales region-wide are down 11% year on year.

Seattle-area realtors listed rising mortgage rates as being a key factor in the market’s decline as well as tightening by China against foreign investment, which had been an accelerant on the hot Seattle-area real-estate market. (Nationwide, mortgage applications plummeted 9% year-on-year in June.) Inventory appears to have risen in Washington partly because dying demand isn’t eating the skinny inventory up and partly because some owners are starting to realize demand is retreating, so their opportunity to sell at a peak price is fading away. That appears to be causing homeowners to quickly put their homes on the market in order to capture peak pricing.

Builders nationwide complain of being “burdened by rising construction material costs.” That is due to tariffs imposed by Trump on Canadian lumber imports over a year ago — the first Trump tariffs to go into effect. Those rising construction costs are forcing housing prices up at the same time that thin supply is driving prices up and at the same time that rising interest rates are driving the effective price of home ownership up. It’s a perfect storm of events rising against the housing market.


The housing market collapse is now



The 2018 Housing market collapse has begun

Housing market collapse is imminent.



The whole market feels like it is in the summer doldrums even though summer is never a time of doldrums for real estate. That’s a sure tell. Summer is always the most energized time for building and buying and selling homes, especially in the otherwise rainy Northwest! Moreover, the above tales of a declining market are coming from numerous big real-estate agents, who always talk markets up; and the Northwest is consistently one of the nation’s hottest markets.

Such a broadly perceptible and admitted sagging sensation during the perennial peak buying period of the year is proof that the entire market landscape is starting to slide away.

Housing, as I’ve maintained for a year, is going down. The next housing market collapse is here. This is EXACTLY what the first stage of a housing collapse feels like.


To make it easy for you to verify my predictions regarding the housing market collapse and the fact it would see temporary reprieve until this summer here are the main articles that predicted the collapse and then predicted the reprieve and its timing:


List of Seven Troubles Assailing the US Economy as We Head into Summer

Hurricanes Harvey and Irma May Lend Helping Hand to Economy, but Hurricane Iniki and Katrina Tell More Complex Longterm Tales

I Know What the Economy Did Last Summer Part 2: The Real Estate Rollover


Knave Dave Trogdor Wed, 07/18/2018 - 14:35 Permalink

It is not disaster yet. In late 2007 when I said much the same thing about the first decline in prices in Honolulu where I lived and managed properties, it was not disaster yet either.

Seattle, like Honolulu, is a VERY strong real-estate market; so, it got hit less than almost any other market in the US when real estate collapsed. As the article above says, this is by far the best time of the year for real-estate sales and construction in Seattle. So, when both markets feel soggy and soft at the same time during their normal peak, that SHOULD get your attention. It is a very unusual feeling that has even gotten the attention of numerous real estate agents in that region, who usually just talk their book.

It's why I've put my money where my mouth is -- putting my own home on the market to sell at peak value with the intention of renting to wait out the fall. In late 2007, I strongly encouraged my ex-wife to put her small estate on the market, which she and her brothers subsequently did and wound up selling just a little after the peak but still with good timing.

Pay attention to what you feel under your feet, particularly in harbinger markets. (Meaning, in this case, markets that are normally undefeatable in their constant price increases, which now feel soft and even slightly sinking.) If the ground doesn't feel firm under your feet in those locales, then it probably isn't firm anywhere.


In reply to by Trogdor

847328_3527 Knave Dave Wed, 07/18/2018 - 18:33 Permalink

Many areas are feeling the pinch of 8 years of Obamanomics, Obamacare and the destruction of the energy sector.

I visited my friend west of Houston (Katy area) and was surprised to see so many houses for sale. I remember three years ago there was a 6 month wait to get into a house there. My friend said many of the energy people he worked with had to move from either high mortgage payments and/or high property taxes (3.5%) + HOA of about $1,200/year.

Jobs are slowly coming back to the area but slowly and they tend not to be high paying jobs like energy engineering jobs were he said. Warehouse work does not support a $600k house with 3.5% taxes plus all the maintenance costs.

In reply to by Knave Dave

Handful of Dust . . . _ _ _ . . . Wed, 07/18/2018 - 21:02 Permalink

Many areas now have raw land falling in price also as speculators star to worry about carrying costs since the rates are rising. Prior, zero interest rates allowed speculators to carry huge amounts of raw land in the hopes cities would gradually expand out there and prices would soar. That ain't happening now nearly as fast as before.

I see it happening in NC, Texas and Georgia. I don't know about other areas but raw land that used to be listed for $15k-20k at the peak is now slightly more reasonable at $8k.

I intend to look a small 20-30 acre area when it comes down to $3,000/acre or so. I am in no rush.

In reply to by . . . _ _ _ . . .

Mazzy 847328_3527 Thu, 07/19/2018 - 16:09 Permalink

Texas's low income tax rate is great....if you have great iincome.  But housing in Texas is just like in upstate NY where people pay 3.5-4% property taxes.  You are buying your local government your own house every 25 years (actually faster when you factor in ever-increasing assessments on a slowly depreciating strucutre).

For as liberal/leftist as Maryland is we actually have pretty middle-of-the-road taxes.  We beat Iowa or Nebraska, for examples, by a long shot, but I do wish we could be more like Wyoming or South Dakota.


In reply to by 847328_3527

847328_3527 Mazzy Fri, 07/20/2018 - 07:22 Permalink

True, In fact, Texas is NOT a great place to retire since they have zero income tax but very high property taxes to make up for it. That hurts retirees the most since they have low income but still have to pay property taxes.

I heard Gov Abbott make that point; namely, retirees are moving out of Texas to other more friendly states re: prop taxes.


In reply to by Mazzy

Ruger556 Mazzy Mon, 07/23/2018 - 10:18 Permalink

you are correct, but housing is also cheaper in TX. I came to TX from PA and was taxed on 4% and change on income. The house we have here would cost 3x the amount in PA and so the assessment would be a lot higher in PA, and we would have paid more property taxes in PA for the same house.  Not that our house is extravagant, it is a nice house, but it came with 11 acres, and try to get 11 acres of land in the philly suburbs at a reasonable cost.. can't be done, you are paying 1million for the land alone.  So overall, we are paying less taxes.. and have a much nicer house.. and really our property taxes are only 1800$ more than what they were in PA.

In reply to by Mazzy

Itdoesntmatter 847328_3527 Thu, 07/19/2018 - 21:55 Permalink

of course...it obama's fault....house prices and the market had actually collapsed as he took office after eight years of bush...obama didn't fix anything but house prices and the market made a complete rebound...i guess that's because of eight years of bush.....oh ya...the bush collapse was after eight years of clinton........fuck you people are fucking stupidly predictable...i guess if anything bad happens under trump is obama's fault....


In reply to by 847328_3527

new game Knave Dave Fri, 07/20/2018 - 05:01 Permalink

this hardly needs discussion! it is happening, the echo bubble.

just observing a repeat, w/o toxic mortgages, so it will be a decline,

but no bust! just a decline to find equilibrium. 10-20 percent?

we will see this across the economy. deflation from higher rates.

and that nasty LIBOR thingy. the ten will be the guiding force.

rates up- sales down-simple shit maynard.

former real estate broker that checked out in 08...

In reply to by Knave Dave

Superlat Wrenching Away Thu, 07/19/2018 - 08:10 Permalink

I search Seattle area MLS daily. The market here has gone bonkers in the last 18 months, EVERY area up at least 25%, some areas like Tacoma literally DOUBLED. Then again, we have the most people arriving in the entire nation.

I haven't seen any drop in prices, though I am seeing a lot of people listing homes at ridiculous prices, and having to drop them to get any interest. Anything under 450k is still selling quickly, and that's in some rather distant areas, where a commute into Seattle will make you want to die quickly. These listings sold three years ago at HALF the current price. THey've been remodeled, but cmon! However, our climate has turned into CA in the last three years, when it used to be pretty bad. Winters are still long and rainy, not that cold, but our summers are no longer duds - they are pretty sweet, but not infernal like much of the rest of the country, without crazy events like the East and South. Our weather is becoming the best in the nation.

That said, August of 2007 was the beginning of the last bust, and things feel like that. We'll see if the schedule holds to the previous pattern.

I know of a house in Montlake that sold for 2 million. A central neighborhood, but very quaint area, NOT on the lake, an old pile of early 20th century timber, probably a 7000 sq ft lot, needed a lot of work. Wow, did the family that inherited that place ever score...What could you do for 2 million? Of course, it will be split by siblings, but still. What sucker paid that much for that?

In reply to by Wrenching Away

Knave Dave Superlat Thu, 07/19/2018 - 10:54 Permalink

"What could you do for 2 million?"

If it were me ... I'd move ... the hell out of there! Go someplace where the two mil will buy you a mansion. Or just buy a really sweet house of reasonable size and pocket the remaining million for your retirement.

What you describe sounds exactly like the crest. I lived in Seattle for twenty years, which included the time just before the last wave crested. I saw myself get priced out of the market -- I thought for good. So, for me the real-estate bust was the best thing that ever happened. It is part of what allowed me to get into home ownership.

The market in Seattle back then, as you recall, felt exactly like the superheated situation you describe right now. People were going insane, and prices now are even worse.

This June was the first price drop for King County. It's like seeing the first brick that crumbles at the bottom of a brick structure that you know is overloaded. Better keep your eyes on the other bricks. Or just get the heck out of the way. A suddenly crumbling brick at the bottom of an overloaded structure is not a good sign.

As you know, it is especially odd during one of those glorious Seattle summers. June is the best real-estate month of the year in Seattle. School is out; summer is here, and all the moles come out of their holes to see what sunlight looks like. It's glorious and buyers are exuberant. So, a price drop (if it was accurately reported in the press) for real estate in June in King County is really odd.

In reply to by Superlat

W.M. Worry Knave Dave Wed, 07/18/2018 - 19:02 Permalink

A friend of mine listed a new spec house last month in Bellingham for $899K in a so-so location with no view. Had 200 people at the open house and got 4 offers. It went for $940K ............There is very little inventory and some fairly unappealing overpriced houses are starting to show up in the listings, otherwise it doesn't seem at all soft around here.

In reply to by Knave Dave

Knave Dave W.M. Worry Wed, 07/18/2018 - 21:41 Permalink

Not as evident yet in Bellingham, but it is happening. I just talked with a real-estate agent in Bellingham who told me he agrees with my analysis about the housing market being at the tipping point for another downturn. Also read another realtor from there (Troy Muljat) about a month ago who said he feels the same thing in the air -- that there is a turning forming right now.

The change has happened quickly. The multiple offer thing was happening a month or two ago, but not so much anymore I gather. I know someone up there with a beautiful property with magnificent views for sale who got four people at her open house a month ago (listed for $900,000) and no offers. Has had no one even look at it since.

In reply to by W.M. Worry

Superlat Knave Dave Thu, 07/19/2018 - 08:15 Permalink

Bellingham isn't worth 900k in any scenario, short of 2 acres with a sound view/waterfront. People are paying 2 million in Seattle for what used to be middle class bungalows. It's over, although everyone in the world does want to move to the NW, and we will have the best climate down the road, until the megaquake hits.

In reply to by Knave Dave

FEDbuster divingengineer Fri, 07/20/2018 - 10:05 Permalink

I wouldn't live there if the homes were free.  My sister in law and her boyfriend both sold their homes in Kirkland last year for outrageous prices to Chinese buyers (all cash transactions), and moved to central Arizona.  They bought a beautiful home in a gated community for $300k cash and banked over a million between the two of them.  Best move they ever made.

In reply to by divingengineer

steelhead23 Knave Dave Thu, 07/19/2018 - 10:45 Permalink

So, why is this happening, you may ask.  I sense that most folks on this blog are either self-employed, retired, or are otherwise not wage-earners.  For investors, the last nine years have been golden as the DJIA has nearly quadrupled, real estate has recovered, etc. etc.  Wages, however, have not kept up with inflation and it is wages, not speculation, that pays most mortgages.  The run-up in housing values was fueled by low interest rates and pent-up demand, and of course, speculation.  With rising mortgage rates, substantial over-valuation, and flat wages, the next 'tell' of the certain to occur bust of the housing bubble will be a substantial increase in delinquencies and defaults.  You players out there might wish to trim your holdings in REITs and the like as there is a storm brewing.

In reply to by Knave Dave

Nostradumbass steelhead23 Thu, 07/19/2018 - 13:39 Permalink

There are endless help wanted signs all along the PNW coast and the costs of housing are just too high to get people to live there and work in service and low skill jobs. Restaurants actually close off portions of their dining areas because they are so understaffed. Those areas open up during prime dining hours when there is more staff available. I have seen classified help wanted ads in the paper where a $500 signing bonus is offered to anyone wanting to be a line cook.

Something's got to give and it will. 

In reply to by steelhead23

DontWorry steelhead23 Fri, 07/20/2018 - 09:30 Permalink

Thats the difference between wealth and income.  People with wealth (stocks) have gotten much wealthier, but people with income aren't keeping up.  The 2008 bailout was all about saving wealth and preserving the status quo.  Now more and more goods are chasing the fewer and fewer who have wealth.  Wage slaves are just getting by.

In reply to by steelhead23

Knave Dave steelhead23 Fri, 07/20/2018 - 13:00 Permalink

Yes, that's the third step. The first tell (sales declines) is going to be quickly followed by the second tell (price declines). Both of those, however, are just getting started (and may happen almost in lockstep); so it will likely take half a year before we move to the tell you mention where defaults start to rise in any statistically meaningful way. By that time, you are too late to make any move to help yourself other than to dump what you have BELOW the going market at the time in order to get ahead of the race downhill. And you will be selling into the winter months, which is difficult at any time.

If you wait until that final tell -- which is the actually going over the edge of the cliff -- before making any real estate move that you need to make (and if you cannot just hold where you are for years to come), then DO NOT make the biggest mistake of all: I warned people about this last time around and few would listen. YOU MUST, at that point (if you need to sell), price 5-10% BELOW the market value, or YOU WILL CHASE THE MARKET ALL THE WAY TO THE BOTTOM!

You have to get ahead of the rush if you wait until that third tell, accept your losses quickly and get out of the way of the cascading hordes. Once the defaults start to show up, the market will start going down so fast that you wind up repricing your way all the way to the bottom if you don't jump ahead of the slide and accept some larger loss right up front. If you wait to the last moment, you are going to have to price aggressively in order to leap out of the way of the rush.

I believe this summer is the last point at which you can sell with a certain amount of ease. Of course, if you are happy where you are and you're OK with your mortgage, confident you can keep making payments even in tougher economic times, then there is nothing wrong with staying put. And, if you are already out of a mortgage, bless your soul for being smart. You are in the best place of all.

In reply to by steelhead23

rtb61 Knave Dave Thu, 07/19/2018 - 12:37 Permalink

It is a really messy market. The reality of climate change and sea level rise is starting to really bite and a lot of underwaterfront properties are coming on the market, all fully exposed by the demands for flood insurance and the flood maps that come with it.

Those high end houses popping up in large unsellable numbers and impacting the entire market, has those high end underwaterfront properties prices fall, a lot, so they take down the rest of the market.

One real bad summer period in the ex-perma frost zone and a mass of methane at the worst possible locations will see rapidly rising temperatures in the worst possible locations and sea level rise could be ten times faster than worst estimates because they are all climate based and done on averages and not on extremes of weather driven by cyclic oscillations thrown out of balance and methane tens of thousands of years buried all waiting to burst out in just a few short climatic months.

When the rich and greedy selling lies about no climate change, start selling their climate change affected properties, well you know the situation is really quite bad, extremely bad.

In reply to by Knave Dave

MoreFreedom Knave Dave Thu, 07/19/2018 - 21:21 Permalink

There's a bunch of reasons housing is slowing:

  • Home prices aren't increasing so fast, do demand to buy houses for appreciation is declining
  • Many have stretched buying beyond their long term capability to make payments
  • The Fed is raising interest rates, leading to increased monthly payments especially for adjustable rate loans
  • Limits to deductibility of mortgage interest is now limited to the first $750,000 borrowed
  • The standard deduction increase reduces the benefit of the mortgage interest deduction
  • Interest on home equity lines of credit are no longer deductible unless used to improve the home
  • SALT deductions are now limited to $10,000 per return making it more expensive to own homes in high tax states (limiting property tax deductions)
  • People with second homes are especially affected by limits on these deductions
  • The trade war will impact incomes and expenses for many


In reply to by Knave Dave

Dragon HAwk Wed, 07/18/2018 - 14:48 Permalink

You have to live somewhere, a small house paid off, is always worth what you would have to pay somewhere else to rent.

 people who buy more house than they need and use leverage to do it or massive debt are always Gambling, and the odds are always against you.

Knave Dave Dragon HAwk Wed, 07/18/2018 - 14:58 Permalink

I agree. If you're paid off, you're in a fabulous position. If you're not and sell now while you have equity, maybe you can buy something without a mortgage in a couple of years. I'm not a licensed investment advisor, so don't act on my word but weigh it among all the things you hear and see; at least, let it waken anyone to hear and see what is happening right now in real estate. No one can say how far the market will fall for sure because no one knows what magical props might again be quickly brought to bear; but my belief is no props will hold. The prices, themselves, are not supportable by current incomes and incoming interest rates. The Fed, of course, can reverse course on rates, but it is clearly not seem inclined to do so; therefore, will likely do so too late if and when it does. (And, even if they do, dropping rates was the wrong cure in the first place.)

In reply to by Dragon HAwk

GunnerySgtHartman Knave Dave Wed, 07/18/2018 - 15:30 Permalink

Very well stated, sir!  And I fully agree, there will be no props that can hold up the housing market under such a scenario.

I can say that prices aren't as strong in my area, too.  Houses north of $200k are increasingly a tough sell, with some sellers reducing prices as much as $40k to get rid of them.  The sweet spot has been in the $100k to $150k range for three or four years, and even that is falling off (I live in a more rural area, hence the lower prices relative to much of the US).

As for my situation, the rate of increase for the value of my home is dropping.  It was increasing every year at a rate of 3% to 4%, but that rate dropped to 1.5% in the past year.  My mortgage will be paid off in two months.

In reply to by Knave Dave

Knave Dave GunnerySgtHartman Wed, 07/18/2018 - 15:35 Permalink

Excellent on the mortgage! That is, by far, the best plan of all! Well done. That is why my own home just went on the market this summer -- to capture the equity at peak prices in order to hold equity and then buy later, using only the captured equity. The mortgage gets washed out.

I don't have the capacity to pay off my mortgage rapidly, so that is my path for slingshotting my trajectory off the huge gravitational force of the housing-market collapse. It's one way some can benefit from a collapse (if it works out). If you see it coming, you can benefit.

As with all investment choices, there is ALWAYS some risk things will not go as you perceive or as I perceive. If prices keep going up, I lose. You are in the safest position of all -- simply already being mortgage free (or about to be). But my chosen path to mortgage freedom is to use the collapse to get rid of the debt by selling high and sitting out the decline and then buying something entirely within my cash means. In the meantime, I'll cover rent with what I am now paying on the mortgage as housing prices drop.

I bought the farm at the bottom of the market; so, buy low, sell high.

In reply to by GunnerySgtHartman

Jugdish GunnerySgtHartman Wed, 07/18/2018 - 17:58 Permalink

What a waste of 28 years. Spent your time being an ant paying a debt to a bunch of loan sharks. You would've been better off torching the place. Small price to pay for 28 years back. But to each his own. Would be a pity that all people spent sooo much time paying off all their usury contracts to suddenly have those doing "God's work" pull the rug out from underneath everything. 

In reply to by GunnerySgtHartman