The Economy Is Tanking – Housing Is Next

Do not get pimped into buying house now.  Wait 6 to 12 months if you really want to take on that expense because you will get a much better price.  The housing metrics promoted by Wall Street, industry associations and Bloomberg/Fox Biz/CNBC are just as bad as the Government’s seasonally adjusted, annualized rate pig vomit.

Denver is turning into one big “New Price” sign.  Also, I’ve never seen more homes “for rent” in central Denver than now.  Ma n Pa investors will take it in the back side on those homes and I bet many of them are stuck flippers or “swing traders.”  Unfortunately for everyone, many of the Ma n Pa retail price chasers started using mortgages to make their “investment” purchases.  Many of them also checked the “vacation home” box on the mortgage application to get better financing terms.  This will not end well.

Inventory now is piling up across the price spectrum more quickly than the brown stuff waiting to hit the fan blades.  The upper-end price segment of market has more inventory listed than I can recall seeing 2008.  Some small enclaves with psuedo, over-priced mini McMansions have 15-20% of the homes on the market (see Highlands Ranch Golf Club area, for instance).

I wrote an article for Seeking Alpha which explains how some of the “lower profile” housing market metrics are telling a completely different story than the pump and dump headlines on which most of the world reacts:

The bounce in home sales since mid-2010, which has been driven by the Fed’s near zero interest rate policy and $3.6 trillion in QE, has lasted longer than I expected. However, data released recently suggests that the housing market may finally be rolling over. Both mortgage purchase applications and pending home sales declined unexpectedly in July. This data followed a large unexpected drop in new home sales in June (released at the end of July).

You can read the rest of this article here: Renewed Downturn In Housing Starts

Hovnanian will be the first homebuilder to hit the wall this time around. But I have two research reports on companies that will be #2 and #3. I believe one of them may not see 2016’s Christmas. You can access these reports here:  Homebuilder Short-Sell Reports

#2 is the report posted in February.  While it’s not easy shorting anything in this market, patient traders will make a lot of money shorting the homebuilder sector.  The stock prices of these companies have completely dislocated from the underlying fundamentals.  When fundamental reality hits, it will be a bloodbath.

10 thoughts on “The Economy Is Tanking – Housing Is Next

  1. I’ve said it before and I’ll say it again: The market in Denver terrifies me. I am happy that we didn’t end up buying a home late last year / early this year, but according to “news” sources, people just keep snapping up apartments right and left in Denver, and vacancies still seem to be very low. After trying to rent something basic (when we realized buying was out of the question,) we were outbid on APARTMENTS; in some cases, there were 15 applicants for one unit. That’s why we’re living with family for another year to try to save up more money to either move out of state, get a decent apartment here, or try to buy. I am not optimistic.

    On the other hand, I do see a lot of “new price” signs everywhere. Doing a simple search on Redfin reveals that a lot of the higher priced homes in the Highlands, Wash Park, etc. (assumed to be hot areas) are sitting for weeks and even months in some cases.

    I am so conflicted – it really makes me wonder what the heck we should do. We are considering a move to NM or ID because we just feel like we are never going to be able to afford Denver/the Front Range unless we want to max out all of our resources.

    1. Don’t BUY. When you take out a 30yr mortgage, all your doing is renting from the bank.

      Home rental deals are going to go parabolic.

  2. Please keep the housing analysis coming. I’m renting currently in anticipation of what is coming. Your commentary helps a lot.

    1. DON’T BUY – not only are prices going to crash, real estate taxes are going up everywhere. You should check out my research if you want to make a lot of money shorting the market

  3. But I’m wondering that if we get hyperinflation many homeowners can use inflation to pay off their mortgage? So it may not be such a bad investment if you are using shit dollars via mortgage to buy a house.

    Sure they might revalue the debt in a new currency but no way it will be 100 cents on the dollar since the economy won’t be able to take that and everyone would default but maybe 30-50 % in new inflation adjusted terms. A bit of a risky strategy but if you got nothing to lose may be interesting to try.

  4. Been reading your take on the housing market for some time and I agree completely. I sold my house located in a neighborhood of McMansions and downsized in April. This action freed-up a bunch of cash and also reduced my RE taxes big time. I moved out to the sticks where neighbors are few, I can do whatever I want w/ my property (no HOA), and taxes lower. Considered following your advice and just renting, but the rental market here is not very good (high rents, few options) and I found a place I was able to pick-up on the cheap since I was a cash buyer and could act quickly.

    If/when things really fall apart I would rather be where I am at Vs where I was (around a bunch of clueless yuppie-types who are used to writing a check for everything).

    Get this… the guy who bought my old place financed 104% of the sales price! He went VA which requires no down pmt, but charges all these crazy fees which are just tacked onto the loan amount. So he is already under water and will likely become another “victim of the banks” when the housing and mortgage market blow-up again. Unreal.

  5. We bought our home in 2009 at the bottom of the market and sold it in June 2014 for a 45% profit. We are renting today, waiting patently, hoping to take another bite of the apple.

    As we’ve sat on the sidelines over the last 12 months, housing prices have shot up another 7% higher, breaching well above the previous 2006 housing bubble highs into truly stratospheric territory.

    There is no doubt this real-estate market is a bubble in search of a pin and therefore will end in tears as they always do, however my concern centers on the topic of affordability.

    Dave, is it likely in your opinion that the same conditions that trigger a real-estate market crash will also simultaneously cause interest rates to spike higher, i.e., the market takes over and the Fed loses control. Thoughts?

    My fear isinterest rates begin to climb.

    1. I think interest rates going forward will be irrelevant to housing. Obviously a big spike in rates will annihilate housing, the mortgage industry has coerced debt-financed buying to the point at which I believe that most people who qualify for today’s extremely easing mortgage standards are close to tapped out.

      The mortgage industry is almost as bad as it was at the peak of the bubble. It’s just been better disguised. Buyers can now take out in excess of 100% of the purchase cost of a home. Reference interest rates have been near zero now for over 6 years. Mortgage rates have hovered at or near record lows for just as long. FNM/FRE/FHA have drastically cut fees and PMI insurance fees.

      This is a ticking time-bomb that will horrify most people when the bomb goes off…

      1. “Time bomb” aptly put Dave. It’s hard to know what will mitigate enough of the ongoing income and capital destruction to prevent economic meltdown. Whole industries have already been broken down with some on credit lockdown.
        Time bomb or date with destiny, most people are placated by 24/7 infotainers and misleading dividend statements. Stupified by information and disinformation overload. Droning on that buying gold and silver is irresponsible and irrational.
        Time bomb or reality check, , hard assets are fortuitously caught between a highly concentrated, record sized ore body and a high explosive PM market disguised as a docile, low-key flower shop.

  6. People who are losing their homes, have no other alternative but to rent. So rents are going to sky-rocket, so what are people really saving? It’s all agenda 21 to get families out of their own homes in the burbs, and return back to the shit-hole cities to pack and stack apartments!

    Whatever you have to do, get out of the cities!

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