Tag: real estate

The flood of “BAD” real estate news continues to accelerate. So much so that I can barely keep up. And while we haven’t yet seen large price declines, we soon will. The real estate market is rolling over into a massive 3rd leg down that will be equivalent to the bear market in stocks between 2007-2009. Not as fast, but just as deep. In the meantime……

• 1 in 4 homeowners regrets buying a house – Wait for 3-5 years and you will see that number jump to 3 out of 4.
• U.S. mortgage market index hits lowest since December 2000: MBA – Despite historically low interest rates no one is buying. It will only get worse.
• Orange County- California named most overpriced county in the entire United States. – La la land.
• Large investor sales drop 31 percent year-over-year in California.  – Investors/speculators are pulling out. The real estate market is now free to fall. 
• This is bad news for housing  – Indeed it is.
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What You Ought To Know About Today’s Real Estate Market Falling Apart  Google

An eye opening look at Silicon Valley’s real estate…….

“In Palo Alto, the average apartment rent has jumped more than 45 percent in the past five years, to $2,604.69 in February, according to Axiometrics.For some, even two paychecks are not enough. Each month as many as 300 Woodland Park residents receive notices from Equity Residential giving them three days to pay or vacate their homes, according to an employee’s testimony in a lawsuit. “ 

As of today, the Tech Bubble 2.0 is in full force in Silicon Valley. With “stupid” amounts of money floating around the valley I sometimes wonder how regular people can even afford to live there. Well, according to the BusinessWeek article below, they can’t. Yet, that might change fairly soon.

As I have insinuated here a number of times before, the bear market of 2014-2017 is just around the corner (based on our mathematical and timing work). This bear market will be particularly hard on the high flying tech companies located in the valley. While you won’t see the 2000 type of a collapse, 60-70% haircuts are expected.

With one primary difference as it applies to the real estate market. 

When the last tech bubble burst in 2000-2002, the real estate market was in a technical BULL MARKET with another 5-6 years to go. This time around the overall real estate market is on a verge of a massive 3rd leg down in it’s own secular bear market. Real Estate Collapse 2.0 Why, How & When This should serve as a double whammy and it would interesting to see what happens to the Silicon Valley’s real estate under such dire circumstances.

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Will Silicon Valley Real Estate Face Annihilation As Tech Bubble 2.0 Collapses?  Google

BusinessWeek Writes: Silicon Valley’s Housing Haven Is Under Siege

East Palo Alto is the last bastion of low-rent housing in an area where companies such as Tesla Motors (TSLA), Facebook (FB), and Google (GOOG) have minted at least two dozen billionaires and thousands of millionaires. The city’s Woodland Park Apartments, a group of buildings with 1,811 units bought in 2011 by Sam Zell’sEquity Residential (EQR), is where many Silicon Valley cooks, janitors, and housekeepers live, often working second jobs to pay the rent.

For some, even two paychecks are not enough. Each month as many as 300 Woodland Park residents receive notices from Equity Residential giving them three days to pay or vacate their homes, according to an employee’s testimony in a lawsuit. Virginia Valencia, a single mother of three, has been fighting eviction from her one-bedroom Woodland Park apartment since she fell behind on her $1,064 monthly rent in November. “I’m alone, and I don’t have a family to fall back on,” says Valencia, who works in the Tesla Motors cafeteria for $12 an hour. “It seems like they just don’t want us here.”

Affordable housing is becoming harder to find as communities such as Woodland Park disappear from cities across the country. One in four renters now spends more than half of her income on housing, up from one in five a decade ago, according to a 2013 report from Harvard University’s Joint Center for Housing Studies. Nationwide, apartment rents have risen 16 percent in the past five years, according to research company Axiometrics. The surge in rents has been acute in Silicon Valley. In Palo Alto, the average apartment rent has jumped more than 45 percent in the past five years, to $2,604.69 in February, according to Axiometrics.

East Palo Alto, with a population of 29,000, is the only city between San Francisco and San Jose with a rent-control law. The statute, covering all apartment buildings built before 1988 with four or more units, limits increases in rent-controlled units to 2 percent for leases renewed during the year beginning July 1. That’s a point of pride for Ruben Abrica, a 15-year member of East Palo Alto’s city council. In early April, the council gave preliminary approval to a tenant-protection ordinance that will make it harder to demolish low-cost rentals and easier for tenants to organize against property owners. “We’re fighting landlords who have money and power,” Abrica says.

In December 2011, Equity Residential, the nation’s largest publicly traded landlord, acquired Woodland Park, a hodgepodge of 101 apartment buildings built mostly in the 1950s and ’60s, for $130 million from Wells Fargo (WFC), which had foreclosed on the previous owner. Rents for one-bedrooms at Woodland Park started at $1,565 as of early April, according to its website. That’s 47 percent more than Valencia pays under the lease she signed in 2011. Apartment owners often try to evict residents paying low rents after they acquire properties, according to Jeffrey Langbaum, a Bloomberg Industries analyst who covers real estate investment trusts. “This is not Equity Residential-specific and is not uncommon,” says Langbaum.

“I’m alone, and I don’t have a family to fall back on. It seems like they just don’t want us here.”—Virginia Valencia, Woodland Park tenant

Equity Residential has been issuing about 200 to 300 three-day notices a month, said Norma Jaimez, senior accountant at Woodland Park, in a November deposition in a lawsuit. Tenants are considered in default for rents not paid on the first day of the month, and some are subject to $50 late charges, according to Woodland Park leases in court files. “I have the right to three-day them after the first day after when their rent is due,” Jaimez said in the deposition. Equity Residential is managing its property in complete compliance with all applicable laws, Marty McKenna, a spokesman for the company, wrote in an e-mail. Zell, Equity Residential’s founder and chairman, declined to comment.

After Valencia challenged her eviction in court, Equity Residential agreed to allow her to stay as long as she caught up with her overdue rent and made monthly payments on time, according to a Dec. 11 judge’s order. She still owes about $280, according to the landlord’s calculations, including late charges Valencia disputes. The company has been sending her monthly notices to pay or face eviction, most recently one dated March 12.

Valencia now works a second job so she can afford to stay at Woodland Park, earning about $300 extra a week on Friday, Saturday, and Sunday nights selling meals she prepares in a friend’s garage. Last year her oldest son got in trouble with the police, and a social worker told her she should consider spending more time with her kids. It’s a choice Valencia doesn’t have if she wants to keep her apartment. “I work a lot for my children,” she says. “How can I leave my job with the rent what it is?”

As per the Commerce Department report released a few months ago new home sales have collapsed 14.5% to an eight month low.  While industry insiders blame everything from unusually cold weather to baby Jesus for this catastrophic drop, the reality is quite simple. The real estate market is slowly rolling over into a massive bear leg (stage 3) after it’s “dead cat” bounce between (2010-2014). I have outlined all of this in my comprehensive report dating back to October of 2013. Real Estate Collapse 2.0 Why, How & When Thus far, it’s playing out exactly as I predicted.

Here is what most people don’t get. Secular bear markets do not move in straight lines nor do they move fast. Just as bear/bull cycles in the stock markets last 17/18 years, same applies to the real estate cycles.

• Real Estate Bull Market: Arguably, the US real estate boom began at 1991 recession bottom. It lasted until 2006/07 top or 17 years. Stock market equivalent: 1982-2000 bull market.
• Stage 1 – Initial Bear Market Leg In Real Estate. 2007-2010 (3 years). Nationwide, prices declined 20-40%. Stock market equivalent: 2000-2003 Bear Market. The Dow declined  about 40%.
• Stage 2 – Real Estate Bounce.  Also known as the “Dead Cat” bounce 2010-2014 (4 years). Stock market equivalent 2003-2007 bull market.
• State 3 – Real Estate Collapse:  2014-2017. Stage 3 collapses are notoriously sharp, fast and very nasty. The stock market equivalent would be the bear market of 2007-2009 when the Dow lost 56% of it’s value in 18 months. 

Conclusion: While the analysis above is fairly simplistic, it is also extremely accurate when we take our mathematical, timing and cycle work into consideration. The analysis above clearly indicates that the real estate market/sector is about to eat dirt in a massive and a severe Stage 3 decline. This is further confirmed by the undying love for Real Estate in today’s American culture.

Remember, before any bear market terminates itself any sense of “love for an asset class” must be crushed out of the prevailing culture. I am afraid we are at least a decade away from that point when it comes to the American Real Estate.

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New Home Sales Plunge. Why The Upcoming Real Estate Crash Will Be Much Worse Than The 2006-2010 Decline Google

Reuters Writes: New home sales dive to eight-month low in March

WASHINGTON (Reuters) – Sales of new U.S. single-family homes tumbled to their lowest level in eight months in March, dealing a setback to the housing market recovery.

The Commerce Department said on Wednesday sales dropped 14.5 percent to a seasonally adjusted annual rate of 384,000 units, declining for a second consecutive month.

February’s sales were revised up to a 449,000-unit pace from the previously reported 440,000-unit rate.

Economists polled by Reuters had forecast new home sales at a 450,000-unit pace last month.

Compared to March last year, sales were down 13.3 percent, the largest decline since April 2011.

The housing market has been slammed by an unusually cold winter, higher mortgage interest rates and a shortage of properties that is limiting options for potential buyers.

House prices, whose increases have outstripped wage gains, are also weighing on the sector.

New home sales are counted at the signing of contracts. Last month’s surprise decline could still be reflecting some of the impact from the cold weather. Sales plunged in the Midwest and the South. They also fell in the West, but rose in the Northeast.

Data on Tuesday showing a mild decline in home resales last month had offered hope the housing market could be stabilizing.

The inventory of new houses on the market increased 3.2 percent to 193,000 units in March, the highest since November 2010. While the stock of new houses on the market has come off a record low hit in July 2012, it remains less than half of its pre-recession level.

March’s weak sales pace pushed the months supply of houses on the market to 6.0, the highest level since October 2011. That was up from 5.0 months in February.

The median price of a new home last month rose 12.6 percent to $290,000 from March last year.

Great report below. Even though over 7,000,000 properties have already been foreclosed on, there are still over 9,100,000 properties that are still underwater. That is despite a massive investor and institutional buying over the last 4 years. We have long maintained that the real estate market is experiencing a “dead cat” bounce. With mortgage origination collapsing and numerous other signs pointing to a roll over, the Fat Lady is singing…Very Loudly. One thing is certain, you have got to be institutionally insane or financially retarded to be buying a house right now.

If you would like to see our comprehensive report on real estate, please see Real Estate Collapse 2.0 Why, How & When Otherwise, check out the report below.

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Shocking News: The Worst Is Yet To Come For Real Estate. The Sheer Number Of Properties Still Underwater Will Devastate You Google

Dr. Housing Bubble Writes: A mortuary of 7,000,000 foreclosures and counting: Nation still faces 9.1 million properties that are seriously underwater.

If a foreclosure happens in the wilderness, does it make a sound? It seems like people have conveniently forgotten that since the housing crisis hit we have witnessed more than 7,000,000+ foreclosures. Do you think these people believe the Fed is almighty and can stop a speeding train or turn water into wine? Apparently some people forget that the Fed failed to prevent the tech bust or the housing bust in the first place. Now, the Fed is somehow the cult leader and the leader will not let housing values fall. The nation still has 9.1 million seriously underwater homeowners on top of the more 7 million that have gone through foreclosure. It is abundantly clear that the mindless drivel of “buying is always a good decision” is just that. Investors are starting to pull back in expensive states because value is harder to find. I see the lemmings at open houses and you can see the drool at the side of their mouths hoping for a morsel of real estate. The Fed, for better or worse, has turned us all into speculators. Simply putting your money in a bank is a losing battle because inflation is eroding your buying power. Yet wages are not keeping up. What you have is people competing with investors, foreign money, and a market with low inventory and trying to guess the next move from the Fed. Yet the tech bust and housing crash (keep in mind these happened only since 2000) were major events not prevented by the Fed.

Does buying today make sense?

The big question for many is whether buying today makes sense. Hopefully the 7 million foreclosures within the last decade highlights that housing isn’t always a simple buying decision. Investors have been dominant in the market since 2009. Big money is clearly pulling back from inflated markets like those in California. This trend is fairly new but even with this minor twist, inventory is picking up and sales are still very low.

It helps to understand that many foreclosures are happening because people are spread thin. People are still maxed out. Unlike big banks with sophisticated deals and systems in place, most households are living paycheck to paycheck even those with higher incomes. First, take a look at some foreclosure history:

Print this chart out and just remember that housing is a big freaking purchase. Probably the biggest you will ever make. Just because someone is house horny doesn’t mean they should act on it. What fascinates me is that late in 2012, most of those in the housing industry failed to see the big run-up in prices for 2013. Most were predicting 2 to 5 percent price gains. Instead, we saw double-digit gains. At the end of 2013, the predictions were incredibly optimistic for 2014.

If the trend is so obvious and clear, why do we see low volume in housing sales?

Existing home sales are down more than 35 percent from their peak reached in 2006. Our population is growing and prices are going up. Yet the push for higher prices has come from Wall Street, low rates, and normal buyers competing with the investor group. A big question that many are wondering is what will happen when big money starts to flow out of real estate. We are starting to find out slowly. Rates are also likely to go up – so for those that believe the almighty Fed can do anything they should listen to their leader that is utterly telling the market rates will go in one direction.

What we don’t have to guess on is that this recent trend has made it tougher for first time buyers:

First-time home buyers are a small portion of the market today because of investors crowding them out. We also have a large number of young ones living in the basement of their parent’s granite countertop sarcophagus.

Still underwater

Despite the recent rise in home prices we still have 9.1 million home owners seriously underwater. What this tells us is that many people pushed their budgets to the financial limits merely to squeeze in. If this were truly a solid housing uptrend we would be seeing home builders doing what they do, building homes. We would also see existing home sales kicking butt. Yet we have a juiced up system with countless forms of accounting shenanigans. Some try to make it out as if economics and finance are somehow a new science. Unlike Newtonian physics on Earth, the Fed can act like a deus ex machina and literally change the rules for a brief period of time. And people are emotional and the reptilian part of our brain goes haywire when you talk about the “nest” – you need only go to an open house to see the house horny folks battle it out.

We’ve been adding many more rental households over the last few years, just in line with the big investor buying (those 7 million foreclosures have to move somewhere but foreclosures are also slowing down):

What is telling about this chart is that we have never had a sustained period of actually losing home owner households since, well this last crisis. Why? Take a look at the graveyard of 7,000,000 foreclosures. The Fed has turned the housing market into a speculative vehicle and with this volume of investor buying, you should proceed with the caution of buying a stock. This is another critical point here in regards to perceived risk. You have people staying miles away from stocks (which are up 170+ percent since 2009) yet are more than willing to stuff their entire $100,000 or $200,000 down payment into a highly priced piece of property that just went up by double-digits courtesy of investor fever. Yet they feel this is safer! California was a big chunk of the 7,000,000 foreclosures folks. You have people with pathetic 401ks and retirement funds yet 80 to 90 percent of their wealth tied up in one piece of real estate.

7 million foreclosures and currently 9.1 million seriously underwater home owners. It should be apparent that when it comes to buying a house, you really need to run the numbers. Investors have and they arepulling back from certain markets.

We have already reported that mortgage origination/lending have collapsed to the tune of  25-30% quarter over quarter  (Wells Fargo Mortgage Origination Collapses). The chart above is a clear indication of what is going on in the real estate market and what is to come. We have argued the same points for a quite a  while now. First, most of the gains associated with the real estate market have been driven by investor/speculative buying. Blackstone owning 43,000 properties is a clear indication of that. With mortgage origination collapsing, the top is in for this Dead Cat bounce in real estate. We are heading much lower. Need more information? Read this comprehensive report. Real Estate Collapse 2.0. Why, How & When

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Mortgage Lending Hits A 17-Year Low. Why Only Clinically Insane Or Financially Retarded Would Buy A House Now   Google

 

If you ever want to ascertain the primary psyche of the American culture, just watch 1 hour of TV, paying particularly close attention to the commercial breaks.  Here is what “The Man Behind The Curtain” wants you to do. The worst part is… most people seem to comply.  

First, you must go to college, get a massive student loan and get a bunch of credit cards. After you graduate, buy your girlfriend a giant diamond ring, get married and she will love you forever.  Then buy a house, a new car, start a family, get a dog and drink a lot of beer.  Of course, the overwhelming pressures associated with all of the above will grind you into the ground. But not to worry, our top notch pharmaceutical and medical industry got you covered.  Bonner pills, ADD pills, depression pills,  high blood pressure pills, surgery and who can forget ….adult diapers.  And that’s your future, in a nutshell.  

In all of the above, one thing stands out. There is nothing more prevailing in the American culture than the notion that any self respecting, reasonable American with half a brain should own his/her own house. If you don’t, you are viewed as a failure. Now, before I destroy that notion with a few simple calculations and tell you why the housing market is going down the drain again (yes, it’s happening right now), please allow me to destroy the notion of home ownership with some simple common sense.

Reason #1: You Will Never See Your $50-100K Cash Down Payment Again:

Let’s say you are a responsible member of society and instead of getting Interest-Only-No-Down-Payment-I-Am-Never-Going-To-Pay-It-Back Loan, you get a typical 30-Year fixed with 20% down payment. In fact, you have worked incredibly hard and saved up $50,000 – $100,000 to do just that. Congratulations. However,  the stupidest think you can do next is to buy a house and get a mortgage. If you do, kiss that money goodbye. Under today’s monetary conditions you are never going to see it again.

“But Alex, my realtor is telling me that buying a house right now is an opportunity of a lifetime….if I don’t do it now, I will never be able to afford it again, recovery is here, the prices are about to go through the roof, blah, blah, blah…”  – Everyone.

Well, unless your realtors name is George Soros or Warren Buffett, tell your realtor to go pound sand.  What we have experienced between 1994-2007 in the real estate sector is not only atypical, but is truly once in a lifetime. More on that later, but if you are lucky enough to sell the house you buy today at a breakeven, you will still not see the down payment again. It will simply roll over into your next house.  From my point of view it is a lot better to invest that money into your future as opposed to park it in an illiquid asset that is likely to lose at least 50% of its value over the next 2 decades.  

Reason #2: Closing Costs, Maintenance & Property Taxes:

Finally got that house of your dreams?  Great, now bend over and take it like a man. Everything in this house will break down over the next 20 years and it will cost you a boatload of money to maintain.  Throw in closing costs and property taxes and you talking about real money.  Realtors themselves estimate you should budget about $8,000-$12,000 annually on a $500,000 house. Sure, there is an interest deduction on your taxes, but typically (based on your family’s tax structure) the costs above are never fully recovered.

Reason #3: It’s Not An Investment:

Stop saying that your house is an investment. Just stop. It’s a debt burden, not an investment.  Investments produce income and pay dividends. Your house doesn’t do either unless and until you rent it out.  Yes, your house can exhibit capital appreciation, but that is not an investment either. That is more accurately defined as a speculation.  What we saw during the housing boom was just that. Speculation.  Household incomes didn’t go up 500% between 1994-2007, but house prices did.  People who were in the real estate sector simply got lucky. Now, it’s time to ride this Cho Cho Train down.  

Reason #4: Your House Is A Trap:

Got that house of your dreams in The City of Compton, California? Congratulations, you are now trapped.  Even if you get a $100K job offer to wax dolphins in Fiji, you won’t be able to take it. You will be tied down and unable to sell your house at break even. Particularly over the next 2 decades and that is exactly where “Corporate/Government Interests” want you to be. They don’t want you to have the ability to move and get a better job elsewhere. They want you to be tied down, “to have roots”, to be paid less. That wouldn’t be the case if you could increase your salary 25-100% by simply picking up your things and moving across the country. 

And that’s just a few of the points. I can keep going, but I think you get the point. The housing myth is just that….a carefully crafted marketing message.  

Now, let’s get to the best part.

Here are the reasons why you should be mentally committed if you are even thinking about buying a house. Plus, why you should sell your house NOW if you are misfortunate enough to OWN one.

First, you must understand where we are and the cause/effect behind today’s market.

UNDERSTANDING THE HOUSING MARKET, ECONOMY, SPECULATION AND DRIVERS BEHIND BOTH.

Yes, I called for the real estate crash and credit collapse as early as 2005. While my call was a little bit early and premature, eventually it was right on the money. Now, I am saying that the housing crash is not over. 

Before we can understand where we are now and where we are going in the future we must understand where we came from. The Real Estate run up that we have experienced between 1997-2007 has no historical  precedent.  Real estate data going all the way back to 1890 clearly shows that the US housing market basically appreciated at the rate of inflation.  Yes, there were some bubbles and substantial declines, but overall, appreciation at the rate of inflation is an appropriate way to look at the US real estate sector.

A QUICK HISTORY LESSON:

All of that changed in 1997 when Bill Clinton signed The Taxpayer Relief Act into law, basically allowing $250,000 in tax free capital gains in real estate.  While real estate was already appreciating at a good clip at that time, that law added fire to the trend. 

Later,  fearing significant economic slowdown in 2002-2003 the Bush administration added a huge amount of jet fuel to the Real Estate Bubble by cutting interest rates and making mortgage finance available to everyone (yes, even to the dead people).  As people used to say, if you can fog a mirror you can get a mortgage. Of course, all of that led to the largest finance bubble in the history of mankind that “kind of” melted down in 2007-2009. I say “kind of” because most of those excesses are still within our financial system and will have to be worked through in the future.  

WHERE ARE WE NOW?

Issue #1: US Home Ownership Rate Is Plunging

On historical basis, home ownership rate in the US is in free fall. Take a look at the chart. I think it speaks for itself.  

Issue #2: Real Estate Affordability Is Plunging

Take a look at the chart as it speaks for itself. The affordability index is in free fall as well. Most certainly, due to higher interest rates and rising prices. 

Issue #3: Interest Rates Are Going Up             

The trend has shifted up and the 10-year rate is up 100% over the last 12 months. I gave detailed interest rate analysis here. Please take a look here.

Issue #4: US Economy & The Stock Market Is About To Turn Down (Big Time)

This has been the primary trend in our blog since inception. Based on our mathematical and timing work the stock market will go through a bear market between 2014-2017. Pushing the US Economy back into a severe recession.  To learn more about the upcoming bear market please Click Here and read the report.  With further job losses , lower incomes and an economic contraction it would be impossible for the real estate sector  to sustain any sort of a rebound. On the contrary, as the economy tanks real estate prices are bound to collapse further.

Issue #5: Who Is Buying All Of These Properties For Cash Today?

Chinese buyers, hedge funds, banks themselves, investors, speculators, etc…..  Who cares!!!  Remember all those Japanese investors buying everything they could in California and Hawaii in the late 1980′s. I wonder how that turned out for them.

In one of my previous reports I have outlined how large hedge funds, including Blackstone Group, are buying tens of thousands of real estate properties across the nation. With some hedge funds and financial institutions going to the extreme and investing in the likes of plumbers and dentist to help them find and manage properties(Click Here To Read). In Las Vegas alone 70% of real estate purchases over the last year have been done by investors. If all of this doesn’t not scream out “Market Top” at you, I really don’t know what will.

On a more serious note, notice that I didn’t say Average American Family. That is the only category that we should track if we want to accurately predict the future trend in the US Real Estate market. Every other category is irrelevant over the long run.  And guess what? They are not buying. See the charts above. 

Issue #6: Bear Market In Real Estate (sucks people back in)

As I have said in one of my previous posts (US Real Estate At A Turning Point), this is how the bear market works. This is the stage #2 bounce, before the big decline (stage #3).  The bear market tends to suck people back in, offer them perceived safety and a high return before slamming the door, ripping their head off, drinking their blood and taking all of their money. The US Real Estate market is topping in Stage #2 run up here. That is why you are seeing so many divergences. The market should turn down soon. Beware.  

FUTURE OF REAL ESTATE:

Real estate is not made of Gold.  There is a tremendous amount of land available in California, Florida, Nevada and all over the US.  There is no housing shortage. As such, expect real estate to decline significantly in order to revert back to its natural inflation adjusted mean. It might take a few years, it might be different for various cities, but one way or another the market will get there.

HOW FAR DOWN?

Let’s do very simple math for the San Diego market.  It doesn’t have to be exact for our purposes.

Setup:

• San Diego Median Family Income: $61,500
• As Per Various Financial Guidelines Families Shouldn’t Spend More Than 30% Of Their Income On Housing.  That means a $1,500/monthly payment.
• Median Home Price in San Diego: $425,000
• Interest Rates: 30 Year Mortgage 4.35% (Rates as of 2/21/2014) 

With such fundamental input variables median house value should be $300,000 -OR – A 30% DECLINE     ($1,500x360month@4.72%)

What if interest rates go to 7% over the next 5 years, which can easily happen? 

The fundamental value of the median house drops further to $225,000 -OR- A 47% DECLINE

Also, don’t forget that markets oftentimes overshoot to the bottom, just as they set blow off tops. In such a case I wouldn’t be surprised to see a median price of $150,000- 200K -OR- A 65%-50% DECLINE

You say impossible….. I say study financial markets. Nothing is impossible. Here is another way to look at this. Have household incomes increased 500% over the last 20 years? Nope. They have barely moved. Therefore, real estate decline in excess of 50% would simply return the prices to their inflation adjusted base.

TIMING:

In one of my earlier reports “I Am Calling For A Real Estate Top Here“ I clearly outlined the fundamental reasons of why the real estate market has peaked and is now in the process of rolling over. I continue to believe that the nationwide real estate prices are in the process of setting in a top. Since real estate is local, it is much more difficult to identify exact tops. As such, we must go back to the stock market in order gage a better understanding of WHEN the real estate market will tank.

Typically, the stock market foreruns the actual economic recession by 6-12 months. In other words, the stock market prices break down 6-12 months before Economic Data confirms a recession. While real estate prices, in theory, should start breaking down in conjunction with the stock market, that is not always the case. As such, it would be prudent for us to say that the housing prices will start breaking down 6-9 months after the start of the bear market in stocks.

As you know, it has been my claim (based on my mathematical and timing work) that the stock market topped out on December 31st, 2013 ushering in the final leg of a cyclical bear market. If such is the case, we can safely assume that we will start seeing drops in real estate prices sometime in the summer of 2014. Once the market rolls over and confirms, we should see a significant acceleration to the downside in real estate price over the next 3 years (at least).

With that said, we already starting to see evidence that the housing has topped. Please see volume data from RedFin.com below. As always, the volume of sales is first to go. Prices tend to follow. 

WHAT SHOULD YOU DO?

That part is somewhat simple. If you do not own a home and thinking about buying one…..just DON’T do it.  You will save a lot of cash (and your down payment) by renting and waiting for the market to come down over the next few years.

If you already own a home the situation is a little bit tricky. Listen, I am no fool and understand that your house is a home and is important for family formation/structure. If you are happy with you home and could care less what is going on in the real estate market……stay put. However, if you are thinking about selling your home, right now would be a great time to do so.

If you own rental properties that generate positive cash flow and they are not in any way tied into the upcoming real estate decline, keep them. If you are buying investment and/or rental properties as a “speculation” in hopes of capital appreciation or a “flip” you are better off liquidating all of your positions (right now) and getting out. 

CONCLUSION:

Now, I understand and agree that there are various market forces at play that make the picture a lot more complicated. Interest rates, timing, mortgage finance, cash buyers, the FED, foreign buyers, speculation, location, supply/demand, etc….    However, fundamentals will always prevail over time. Everything else is just temporary BS. 

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Real Estate Collapse 2.0  Why, How & When Google

An American Oracle Sees The Future Of Real Estate. What He Predicts Is Both Mind Blowing And Terrifying Beyond Words

AKA, dead cat bounce in the real estate market is over. According to the National Association of Realtors, pending home sales index “unexpectedly” fell 0.8% in February and 10.5% from a year ago level. This should not be unexpected to the readers of this blog. In fact, I have predicted that the housing market is topping out and rolling over as far back as September of 2013. If you would like to get a complete real estate report and learn exactly what will happen over the next few years, please read my comprehensive report. Real Estate Collapse 2.0 Why, How & When 

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Real Estate Mirage Breaks Down  Google

WSJ Reports: Vital Signs: Housing’s Recovery Is Losing Momentum

The National Association of Realtor’s pending home sales index unexpectedly slipped 0.8% in February, pushing the index 10.5% below its year-ago level. And with the January index revised down, pending home sales have fallen for eight consecutive months.

The downtrend foreshadows weakness in future existing home sales. (The pending sales index is based on contract signings, while sales are counted after closings.) While weather may have caused some buyers to hold off from housing hunting, affordability is becoming more of a challenge. Price increases and higher mortgage rates are pricing some potential buyers out of the market.

The NAR forecasts existing-home sales will total 5.0 million this year, down slightly from nearly 5.1 million in 2013.