Tag: real estate market

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Dreaming Of A Housing Bubble

houseingbubble-investwithalex

Real Estate market continues to deteriorate. A good article from Bloomberg. Housing Falters as Forecasters See U.S. Sales Dropping

“The big housing rally wiped itself out because prices increased too quickly for buyers to keep up.” 

What happens next?

There are three primary lines of thought out there. First, the bottom in the real estate market was set back in 2010. There is a shortage of real estate and the real estate market will continue to surge higher for many years to come. Although it is incredibly overpriced. That is the view that Blackstone Group has.

Second, yes the real estate market is going through a bit of a slow down, but it will recover within a relatively short period of time or as soon as the US Economy catches fire. This is the primary view of most people on both the Wall Street and the Main Street.

Then there is my view (that very few people share). That view clear shows that what the real estate market has experienced over the last 4-5 years was a “Dead Cat Bounce” in the overall secular bear market that started in 2006. Further, it suggests that the real estate market is rolling over as it begins it’s stage 3 massive decline.  You can read all about it in my comprehensive report  Real Estate Collapse 2.0 Why, How & When

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Dreaming Of A Housing Bubble Google

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Real Estate Disaster 2.0 Continues To Gather Pace

houseingbubble-investwithalex Real estate collapse 2.0 predicted here in October of 2013, when I called for the housing market (dead cat bounce) top, continues to accelerate. Back than most people thought that I had lost my mind and/or that I had just escaped from a mental institution. …..which is expected by now.  In fact, the number of data points that confirm my original forecast is staggering. Here are a just a few.

  1. U.S. house price gains seen moderating over next few years: poll  – Moderating? “About to collapse” would be a more accurate description. 
  2. The Most Overlooked Statistic in Economics Is Poised for an Epic Comeback: Household Formation –  Yep, no one is getting married and no one (young people) has any money left after making payments on their student debt. Disaster. 
  3. Borrowers Tap Their Homes at a Hot Clip – Who said that people learn from their mistakes? 
  4. The Number Of California Real Estate Agents Collapses 30% – What about all of those investors buying hand over fist for cash? Don’t they need realtors?

  5. “Pent-Up” Pending Home Sales Demand Missing; Down 9.4% YoY – Yep. 

  6. Zero Down Payment? China’s Developers Get Desperate – And let’s not forget about the biggest housing bubble on the face of the Earth.

Here is the bottom line. If you are thinking about buying a house, understand, you are buying at the very top. If you are thinking about selling…..you have about 3-6 months max before this real estate market trend really accelerates and becomes apparent to everyone else.

Z31

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Real Estate. Buy or Run Away?

InvestWithAlex Wisdom 13

Today’s 5 Minute Podcast Covers The Following Topics and is in direct response to one of my readers questions, “What are  your views on real estate? Is right now a good time to buy?” – Roman J. 

    • The truth about real estate. 
    • What is the real reason behind real estate rebound.  
    • The shocking truth of what will happen to real estate over the next decade. 
    • What you should do now and why it will save you a ton of money. 

Did you enjoy this podcast? If so, please review it on iTunes and share it with your friends as we try to get traction. Gratitude!!!

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Warning: Real Estate Collapse Stage 3 Is Beginning To Accelerate

The Wall Street Journal Writes: Banks Cut as Mortgage Boom Ends

 building demolition

A sharp slowdown in mortgage refinancing is forcing banks to cut jobs, fight harder for a smaller pool of home-purchase loans and employ new tactics to drum up business.

The end of a three-decade period of falling mortgage rates has slammed the brakes on a huge wave of refinancing by U.S. households. The drop-off has deprived lenders of a key source of income at a time when the growth in loans for home purchases remains weak.

The Mortgage Bankers Association next week plans to cut its 2014 forecast for loan originations, which include loans for home purchases and refinancing. The current forecast of $1.2 trillion would represent the lowest level in 14 years. The trade group Wednesday reported that mortgage applications in the two weeks ending Jan. 3 touched a 13-year low.

Read The Rest Of The Article Here

With the 10-Year Note being just a few clicks away from 3% (up over 100% over the last 1.5 years), this should come as no surprise to anyone.

As predicted in my earlier post “I AM CALLING FOR A REAL ESTATE TOP HERE” , the real estate market is in process of rolling over.  Listen, as far as I am concerned this is incredibly easy to see and I am having an increasingly difficult time understanding how most people don’t see it. This is reminiscent of me predicting the 2007-2009 collapse in the credit markets starting in 2006.

Alex Dvorkin In Early 2006: Listen guys, this credit market is about to blow up and will take the housing market, the stock market and the entire economy down with it.

Everyone Else:  “Alex, why don’t you just fuck off…… You don’t know what you are talking about….. Keep this up and everyone will know you as the “Boy Who Cried Wolf”…. and my personal favorite “My 88 year old broker who has seen the Great Depression is saying NOW is the buying opportunity of a lifetime”.   

Right.  If you are dumb enough to buy real estate in today’s market, you will get fleeced. Big time. Those who believe real estate always goes up need to go back to as recently as about 1994 to see how people felt about the housing market. Remember something very important. Today’s higher prices have nothing to do with the fundamentals and have everything to do with the massive speculative environment in the credit market. It’s fake….its not real….it is an illusion at best that is about to blow up.

As I have said many times before, stage 3 (upcoming stage) of any bear market is the most severe. Get ready. As I have predicted, the market is already rolling over. 

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Warning: Real Estate Collapse Stage 3 Is Beginning To Accelerate

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4 Scary Reasons You Should Run Away From Real Estate…..Right Now!

Yahoo Finance Writes: 4 Reasons You Shouldn’t Worry Over Rising Mortgage Rate

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An amazing puff piece from the Real Estate Industry. Please see my comments below. Also, please note that I have called for the Real Estate top back in early October of 2013. You can see it here. I Am Calling For A Real Estate Top Here. I am still sticking to that forecast. The market is already rolling over, although, a little bit slower.   

If buying a new home is on your list of goals in the New Year, don’t let talk of rising mortgage rates derail your plans just yet.

As the economy recovers, the Federal Reserve tapers, and home values rise, experts predict we are well on our way to seeing mortgage rates crack 5% in late 2014.

Rates for a 30-year fixed-rate mortgages already hit 4.69% this week, up from 4.63% the week prior, according Bankrate.com. In May, the 30-year rate was 3.52%. Fifteen-year fixed mortgages were up as well, from 3.70% last week to 3.73% this week.

But rising rates don’t necessarily spell doom for house hunters. Here are four big reasons not to worry. 

1. Mortgage rates are getting higher but not drastically so.  

“I don’t think there’s any reason to panic,” says Keith Gumbinger, vice president of mortgage rate tracker HSH.com. “Buying a home will be somewhat more expensive, but I don’t think it’s going to be a matter of ‘Oh, I’m losing so much ground that I have to go out and buy [a home] right now.’”

Historical context is important. A little over a decade ago, the lowest average rate for a 30-year fixed rate mortgage was around 5.24%, Gumbinger notes. It’s easy to forget that when rates fell so dramatically following the housing crash.

“Even if we do start to see 5% rates appearing in 2014, rates will absolutely remain favorable [to buyers],” he says.

When someone in the industry says “I don’t think there’s any reason to panic”, you MUST panic. While in historic terms rates are still low they are still up over 100% in the last 1.5 years. That is a huge move within a short period of time and it will take its toll. It is already happening. Don’t let anyone fool you that it doesn’t matter.

2. Housing inventory is on the rise. 

Nationwide home values have soared over the last year, with year-over-year gains of 13.6%, according to the Dec. 31 S&P/Case-Shiller Home Price Indices. That marks a seven-year high and the 17th consecutive monthly increase.  

But new-home construction has picked up in the last few months and is expected to ramp up more, which should help lift supply. New housing starts were up 30% year-over-year in November 2013, according to the Commerce Department. On top of that, more homeowners will likely sell this year to capitalize on rising home values, contributing to an inventory boost. 

I am not sure how this positive for the housing market, but they are absolutely correct. There is too much inventory out there. Too much hidden inventory for that matter, still sitting on bank balance sheets. Eventually all of that will come to the market and drive the prices lower.

3. There will be less competition from investors. 

Real estate investors were notoriously greedy in the wake of the housing crash, snatching up cheap properties and elbowing out individual home buyers before they knew what hit them. But Jed Kolko, chief economist for Trulia, predicts that competition from investors will die down now that the market is recovering.

Last year “was the year of the investor, but 2014 will be the year of the repeat home buyer,” he says.“Investors buy less as prices rise. Higher prices mean that the return on investment falls, and there’s less room for future price appreciation.” 

In other words, the author wants retail buyers to come in and purchase inventory from investors before market declines. This occurs in the stock market all the time. Again, I am not sure how this is a positive for the real estate sector. It predicts its inevitable decline. Don’t be that FOOL buying from investors at or near the top. 

4. Fed tapering isn’t all bad news.

All eyes are now on Janet Yellen, the incoming Federal Reserve chairman who will be charged with phasing out the bond-buying program that has helped to steady interest rates over the last five years. It will be a delicate process. If Yellen moves too quickly, investors could get spooked and send mortgage rates soaring, notes Bloomberg’s Kathleen Howley. If she moves too slowly, rates could fall and the market could get flooded with home buyers. 

But there’s a silver lining, Gumbinger points out: “Mortgage rates have started to firm up again not strictly because the Fed has started to taper but because the economy has gotten better,” he says. The fact that they’re considering winding down quantitative easing is a sign that the sluggish economic recovery is at least making some headway.

You joking, right? The economy has NOT gotten better. It has gotten sicker. A distinction must be made between real economic growth and a “drunken” credit driven speculative party. What we have seen over the last few years is the later. When it comes to an end in 2014 (based on my timing work) and the bear market resumes, this will be made very clear. Again, this is a horrible position to be in for the real estate market. As I have said many times before, the 3rd leg of the real estate decline will be a severe one. Position yourself now. 

Did you enjoy this article? If so, please share our blog with your friends as we try to get traction. Gratitude!!! 


4 Scary Reasons You Should Run Away From Real Estate…..Right Now! 

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WARNING: The US Real Estate Prices Are About To Decline 45-70%

I HAVE OFFICIALLY CALLED FOR A REAL ESTATE TOP ON OCTOBER 3rd, 2013. CLICK HERE TO SEE

housing bubble

 

Yes, I called it perfectly in 2006-2007 and now I am saying that it 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 1790 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.

real estate 1 investwithalex

 

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 (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 in the 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.  

homeowership-rate-investwithalex 

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 likely due to higher interest rates and rising prices. 

Housing Affordability Index

 

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)

Please read “The Long Awaited US Stock Market Decline Is Likely Here” as to why.

 

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.

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 here before (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 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.

BubbleBurst investwithalex

 

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: $500,000 (pushing that level again as per Trulia.com)
  • Interest Rates: 30 Year Mortgage 4.72% (Rates as of 9/4/2013) 

With such fundamental input variables median house value should be $290,000 -OR – A 42% 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 55% 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 70%-60% DECLINE

You say impossible….. I say study financial markets. Nothing is impossible. 

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 bullshit.

 

ADVICE: 

Your house is not an investment. Don’t be confused. It is the place you live and raise your family. If you are happy with your house, have a fixed interest rate, can afford your monthly payments and don’t care if your house depreciates in value, I would stay put.

If you find yourself in a contrary situation……..I would consider various options. 

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WARNING: The US Real Estate Prices Are About To Decline 45-70%

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Housing Market…Barbarians At The Gate

Reuters Writes: Home sales fall as prices rise

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WASHINGTON (Reuters) – U.S. home resales fell in October to their lowest since June due to an inventory shortage and high property prices that have dampened buying power.

The National Association of Realtors said on Wednesday that sales of previously owned homes fell 3.2 percent last month to an annual rate of 5.12 million units.

Economists polled by Reuters had expected sales to drop to a 5.13 million unit pace in October.

At the same time, the median price rose 12.8 percent in October from a year ago to $199,500. It was the 11th straight month of double-digit gains, and up from last month.

Real Estate fundamentals continue to deteriorate.  Over a month ago I went out on a limb and called for the real estate market top.  Here is that post and reasoning  I Am Calling For A Real Estate Top Here  Even though the price is still increasing in certain markets (as I have predicted), I continue to stand by my forecast.

So, what is the future of housing? To understand what’s coming we must first understand overall macroeconomic picture.  Most importantly we must understand that….

A. Historically speaking the real estate market is still in a massive bubble driven by cheap credit. There is no reason for housing prices to be at this level. As my earlier valuation work showed a 50% haircut from today’s levels would bring the prices into the “normal range” of where they should be.

B. I know that many people will disagree, but your house is not an investment. It is the place you live. It could be an investment if you view it as a business and generate positive cash flow and ROI from your rental. However, that is next to impossible with today’s market prices.  Essentially buying today (or over the last few years) is a speculation where you bet on asset appreciation Vs. positive cash flow.  That is a huge difference.

C. The stock market and the economy will tank starting in 2014. The bear market leg will go into 2017. My mathematical timing work clearly shows that. It is now unavoidable. In such a case housing will experience its 3rd leg down.  Typically, 3rd legs are much harsher than the first decline. The bottom line is, I wouldn’t be at all surprised to see a 30-50% haircut from today’s prices.

Taking an even longer view, eventually we must get to a point where real estate is not viewed as an investment. Where people feel discussed by the housing market. That will be the bottom. Today we are on the opposite side of that view. 

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Real Estate Meltdown Just Starting

Bloomberg Writes: Pending Sales of Existing Homes Slump by Most in Three Years

 housing crash investwithalex

Fewer Americans than forecast signed contracts to buy previously owned homes in September, the fourth straight month of declines, as rising mortgage rates slowed momentum in the housing market.

The index of pending home sales slumped 5.6 percent, exceeding all estimates in a Bloomberg survey of economists and the biggest drop in more than three years, after a 1.6 percent decrease in August, the National Association of Realtors reported today in Washington. The index fell to the lowest level this year.

Mortgage rates last month reached two-year highs and some homeowners are reluctant to put properties up for sale as they wait for prices to climb, leading to tight inventories. Those forces are pushing some would-be buyers to the sidelines and slowing the pace of recovery in real estate, giving Federal Reserve policy makers reason to delay reducing stimulus when they meet this week.

Read The Rest Of The Article Here

On October 3rd, 2013 I put my foot down and made a gutsy call. I have called for a housing top at the time. You can read the article here. I Am Calling For A Real Estate Top Here

Even though most people have dismissed this forecast I continue to stand by it. As new data points for the real estate market continue to come in, it looks as if I have made the correct and exact call. Yes, certain markets will roll over and start going down a little bit later, but the overall market is starting to look top heavy here. I would expect to continue seeing weakness over the next few quarters until we begin to see clear indications that the real estate market is heading down. At that time a lot of people will freak out and we should see a real inventory spike followed by even lower real estate prices. Of course this cycle will feed on itself for a long time.

Remember, this will be the 3rd leg down for the real estate sector. The first one was the initial decline between 2007 and 2010. Typically, 3rd legs down are longer and steeper. As such one shouldn’t be surprised to see large drops in housing prices over the next few years. As my previous valuation work here showed, overpriced markets like So. Cal should and could go down as much as 50%. 

For now we wait and see as the housing market continues its rolling over process.  

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Bernanke Is Over-Stimulating Americans

Reuters Writes: Fed’s Fisher warns of potential U.S. housing bubble, MBS buys

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(Reuters) – A top Federal Reserve official said on Thursday he is seeing fresh signs of a U.S. “housing bubble” and warned about the central bank’s ongoing purchases of mortgage-based bonds.

“I’m beginning to see signs not just in my district but across the country that we are entering, once again, a housing bubble,” Dallas Fed President Richard Fisher told reporters after a speech in New York. “So that leads me … to be very cautious about our mortgage-backed securities purchase program.”

But citing rising year-on-year house prices in Texas cities, and elsewhere in the country, he warned that the central bank’s hyper-accommodative policies could be inflating dangerous asset price bubbles.

“We have to be watchful and realize there has historically been an era of the Fed over-stimulating” since the Great Depression, Fisher said.

“I worry we are following that tradition now,” he added on the sidelines of a meeting of the New York Economic Club. “No one knows when the bubble pops. But I would argue that … with each dollar we buy in Treasuries and mortgage-backed securities, we’re getting closer to the tipping point.”

Read The Rest Of The Article Here

I have a lot of respect for Fisher. Simply put, unlike most others at the Fed he doesn’t have his head stuck up his ass. He calls it as he sees it. He is absolutely correct by indicating that the Fed is over-stimulating (once again) and that causes all sorts of issues, including another housing bubble.

I do disagree with him on one issue. The fact that “No one knows when the bubble pops”.  There are ways and signs to figure it out. When it comes to the US Real Estate market there are multiple signs that the real estate market is completing its bounce from the 2010 bottom and is in process of rolling over. So much so that I went out on a limb a few weeks ago to call for a housing market top. My previous article “I Am Calling For  A Real Estate Top Here“ I have outlined a case of why I am making that decision. I highly encourage you to revisit that post.

While certain local markets might continue to surge upward for the time being, the overall market is reversing itself NOW. If you are speculating or investing in the real estate right now, it is not going to end well. 

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The Secret Of Upcoming Real Estate Crash

Bloomberg Writes: A Lonely Housing Bear Predicts a Big Tumble

 housing bubble

Talk to Mark Hanson about the housing market for five minutes and you may find yourself wanting to sell your home and park the cash in a suitcase. 

The Menlo Park, California, real estate analyst, blogger and founder of consultancy Hanson Advisers predicts a decline of 20 percent in housing prices in the next 12 months. Half the gains since the latest housing bottom in 2011 could be erased in the hot areas — Florida, California, Nevada, Arizona and Georgia — by rising interest rates and a thinner herd of speculative private-equity buyers, he says.

Read The Rest Of The Article Here

In my last week’s post I Am Calling For A Real Estate Top Here I have laid out a case of why I  believe the real estate market is topping and should decline from this point on. It seems like other people are starting to see the forest through the trees as well.

Even thought I have briefly mentioned it before, I would like to take this opportunity to talk about an important point as it pertains to the real estate market.  If you study financial markets, as I have, you soon begin to see patterns and similar structures in all markets. One of the easiest things to understand is that markets NEVER go straight up and down and they RARELY complete their moves in one motion.  Typically it takes 3 to 5 distinct moves (up and down) to complete either a bear or a bull move.

As such, what we have experienced in 2007-2010/11 real estate market was only the first leg down.  What we are experiencing now is a rebound, 2010/11 to today. Rebound acts as a perfect tool to suck investors or buyers back in by promising that the worst is over and by offering outsized gains.   Rebounds are often powerful, yet short lived. When they are over, markets tend to shift fast to continue on with their original move.

This is where we find ourselves today. The rebound is topping and the market is getting ready to reverse itself. As soon as it does (and I believe it is already happening) the market will resume its BEAR MARKET in real estate. The third leg down is typically more powerful than the first one. As such, I would expect significant declines over the next few years in the real estate arena.

Fundamental certainly support this development as well. 

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