I was chatting with an Denver-based real estate professional yesterday. This person stated outright that the real estate market was in an insanely overvalued bubble that was going to pop.
It’s pretty obvious to anyone who makes the decision to look at the facts. For instance, the media, Wall Street and industry association promotional juggernauts (National Association of Realtors, National Association of Homebuilders) continue to gloat over the supposed continuous price increases being reported by highly statistically unreliable data series like the Case-Shiller housing price index (Even Robert Shiller has admitted to this series’ flaws in the past).
Every metric promoted in the headlines is based on “year over year” comparisons. A far different truth emerges when you shine the light on month to month changes in price. In fact, I linked an article in a blog post earlier this week (LINK) which showed that 30% of all homes across the major MSAs lost value over the last year. In many markets, prices have been declining for most of this year to date when measured serially month to month.
In just about any market across the country, if you closed on a home in June and used a 10% or less down payment, you are now underwater on your mortgage. That’s a fact agreed upon by my friend mentioned above.
Aaron Layman, based in Houston and one of the few truly honest real estate professionals, posted commentary today which shows just how extremely misleading media reports about the real estate have become. His example uses the Houston condo market, but the same type of relative numbers apply to most large MSAs:
- Annualized sales of townhomes/condos are down 1.6 percent, but inventory is up 12.9 percent.
- Annualized sales of highrise condos are down 14%, but inventory is up a 16.1 percent!
- The median price of combined new and existing highrise construction is down 11.6 percent.
- The median price of new highrise construction in Houston has shown ZERO appreciation from last year!
- Annualized sales of new highrise condos are down a stunning 75 percent!
Inventory of new highrise condos in Houston is up 44.2 percent!
- MLS shows 111 months of inventory for new highrise construction in Houston!
You can read all of Aaron’s commentary here: LINK
That same dynamic is definitely occurring in Denver. And the non-stop rise in rent prices being reported all over the place is just outright wrong. Nearly every building in Denver is offering some type of rent concession to sign a year lease, with some offering up to two months free. Denver has been cited as allegedly one of the hottest markets.
The homebuilders are more overvalued now than they were at the peak of the housing bubble. We’ve already seen one homebulder stock lose over 9% in one day. I happened to have published a research report on this company about 4 days before it reported. You can still take advantage of the significant amount of downside that remains in this stock, which is loaded with red flags – including an ongoing IRS audit: RED FLAG ALERT HOMEBUILDER