In many areas of the country prices are already down 5-10%. I know, you’re going to say that offer prices are not reflecting that. But talk to the developers of NYC and SF condos who are trying to unload growing inventory. Douglas Elliman did a study of NYC resales released in October and found that resale volume was down 20% in the third quarter vs. Q3 2015. A report out in November published by Housing Wire said that home sales volume in the SF Bay area fell 10.3% in the first 9 months of 2016 vs. 2015. Price follows volume and inventory is piling up.
NYC led the popping of the big housing bubble. It will this time too. Prices in the “famed” Hampton resort area down 20% on average and some case down as much as 50% from unrealistic offering prices. Delinquencies and defaults are rising as well. While the mainstream media reported that foreclosures hit a post-crisis low in October, not reported by the mainstream media is that delinquencies, defaults and foreclosure starts are spiking up. Foreclosure starts in Colorado were up 65% from September to October.
Housing starts for November were reported today to have crashed 18.7% from October led by a 44% collapse in multi-family starts. No surprise there. Denver, one of the hottest marekts in the country over the last few years with 11k people per month moving here, is experiencing a massive pile-up in new building apartment inventory. I got a flyer in the mail last week advertising a new luxury building offering 2 months free rent and free parking plus some other incentives. Readers and subscribers from all over the country are reporting similar conditions in their market. Yes, I know some small pockets around the country may still be “hot,” but if you live in one of those areas email me with what you are seeing by June.
Here’s a preview of some of the content in Sunday’s Short Seller’s Journal (click to enlarge):
The graph above is from the NAHB’s website that shows its homebuilder “sentimement” index plotted against single-family housing starts. You’ll note the tight correlation except in times of irrational exuberance exhibited by builders. You’ll note that starts crash when exuberance is at a peak. Exuberance by builders hit a high in November not seen since 2005…here’s how it translated in the homebuilder stocks:
Note the crash in housing stocks a few months after homebuilder “sentiment” index peaked. From a fundamental standpoint, the homebuilders are more overvalued now than they were in 2005 in terms of enterprise value to unit sales. This because debt and inventory levels at just about every major homebuilder is as high or higher now than it was in 2005 BUT unit sales volume is roughly 50% of the volume at the 2005 peak. The equities are set up of another spectacular sell-off.
Refi and purchase mortgage applications are getting crushed with mortgage rates up only 1% from the all-time lows. What will happen when mortgage rates “normalize” – i.e. blow out another 3-5%?
The next issue of the Short Seller’s Journal will include a lot more detail on the housing market and some surprisingly bearish numbers on retail sales this holiday season to date. You can find out more about the SSJ by clicking on this link: Short Seller’s Journal subscription link.
Dave, wife and I have our eye on 2 condos, one brand new hi-rise in Seattle and a semi-hi-rise across the lake in Bellevue. Will wait patiently for the next housing crash to make our move. Hopefully buoyed financially by an accompanying up move in the PMs & miners. But if Orwell’s vision takes hold too dramatically here in the States we’ll probably opt for living in Thailand after I retire.
That is good thinking. This system might not recover from the next crash. There will be no return to “normal.”
I think you’re wrong about NYC leading the bursting of bubble 1.0. I believe it was San Diego, which led the bubble up – you can look up stats where prices were appreciating 20% annually after the rate cuts post 9/11. The “prime” areas of SD topped in the fall of 2003 and then inventory exploded. I was tracking carefully and put my house on the market in the spring of 2004, just after the first rate hike. I just missed the top in my neighborhood, but that sale was a fraud – buyer never even moved in and a few years later it was a foreclosure. The bubble was still going into 2005 in the lower end parts of SD, giving the NAR-owned press the cover to publish there BS.
IMO I think the lead sled dog in this echo bubble is China. In the western hemisphere we see it in Vancouver which was powered by chinese money, as was later SF bay area, so cal, etc. The money that went into Canada in turn was invested in the US as snowbird investments in the southwest us, florida, and hawaii. If you look at the stats, I think it was in 2014 that the biggest buyers of real estate in hawaii and manhatten were canadians. All of that was at one point the effect of chinese money/commodity boom spilling into Canada first. Same thing happened in Australia/New Zealand which in turn was invested in Bali, Thailand, etc. I was in Australia in march of this year and the bubble was on the surface insane, but beneath the facade the cracks were everywhere.
11k people per month moving to Denver? I may be joining you, but it won’t happen until 2018-2019. My company has slowly been moving out of California.
Checking Zillow, the Denver area looks packed with inventory and foreclosures, but the prices look obscene. I found quite a few for sale that were sold a year ago for $100k less. Give me a break.
But WHERE is the job growth that is needed to support a housing market? We can’t be a nation of people all selling each other hamburgers and T-shirts for much longer. Just look at the awful financial shape Venezuela is in right now, and sinking even lower by the week, if not the day. That is a preview of America in 2017.
Any talk of a rising housing market is just a bunch of hot air at present, what with the continual decline of the perceived purchasing power of the fiat paper currency (AKA inflation) that we are seeing all over the planet.
The next issue of Short Seller’s Journal will focus on the housing market, which is fading quickly