Housing Bubble II: Bubble, Bubble, Toil and Trouble

“This isn’t your father’s housing and mortgage market- Mark Hanson, Real Estate Analyst

https://www.mhanson.com/

In 2007 the largest housing bubble in American history was inflating and literally popped overnight.  The Mainstream media would prefer that you focus on the DC Circus Show than on the Case-Shiller charts that indicate that 2017 looks eerily familiar.

In 2007 unemployment was low,  banks offered easy credit and low interest rates caused housing prices to soar to unprecedented heights.  Today housing prices have now reached or exceeded 2006 peak levels, credit is tighter, unemployment higher, and wages are flat.  Only through governmental intervention was this rebound possible.
Take a look at the Case-Shiller data presented by real estate analyst Mark Hanson below:

 

Other observations and “red-flags” from Hanson on Peak Housing, after the latest new home sales data show:

  • Sharp downward sales revisions for past 3-months.
  • Huge downward price revisions for past 3-months, lower by 10%, 5% and 3%, respectively, exactly as he predicted on last month’s release.
  • Builders maxed out on pricing power; Med & avg prices flat for 2-years.
  • The all-important Southern Region was flat YY; the South makes up over half of all sales in the nation, and drives builder demand and profits.
  • 100% of the June YY sales gain came from the Western Region, which doesn’t jibe with the weak price performance and will likely be revised lower next month.
  • Income required to buy the avg priced builder house is at historical highs and has completely diverged from the multi-decade trend line.
  • Historically low growth & rebound relative to resales suggest “lack of supply” meme in the Existing Sales market is over-stated.

Hanson says that, “Peak builder is here.”

Other quantitative and qualitative observations include:

1) New Home Sales “up to” 1995 levels after $15 TRILLION in debt and Fed liquidity aimed largely at the sector.

2) Builder pricing power largely flat for 2-years.

3) Income required to buy the average priced builder house has completely diverged from the multi-decade trend line. This obviously explains why sales are only at 600k SAAR now vs 1.2 million in Bubble 1.0. Reversion to this mean will occur…either thru a sharp rise in income; new exotic loan programs, which make payment less; or house prices dropping.

4) Last time builders were this euphoric was the peak of the biggest credit bubble in history.

5) It’s too bad the public isn’t as euphoric about buying as the builders think they are.

2 Responses

  1. […] via Housing Bubble II: Bubble, Bubble, Toil and Trouble — Livinglies’s Weblog […]

  2. Housing market is going to crash again and be bigger and badder than the last time/

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