The Entire Housing Market Hit A Wall In August

“I spent well over an hour surveying the housing market in my area (south-metro Denver) and the market is flooded with homes for sale, with many mid-range ($500-$750) homes being lowered 5-10% in price and still sitting on the market.  Zillow is estimating the average home listed in my area is now down 8% from original listing.  This is an area that has been one of the hottest areas of Denver in the last year.  Homes over $1 million are piling up like dogs under a cat stranded in a tree.”  – A colleague of mine who has been looking at the market as a buyer for a year

He sent me a link to the typical home listing he is seeing:   Lowered 4 Times In Last Year

It’s not just confined to Denver:

Untitled

More evidence:

– All cash sales fall to 6-yr low in June  – that’s your investment buyer/flipper

NEW home mortgage purchase applications plunge 9% in August – that’s your homebuilder home sales going down the drain, per the HOV/TOL 10-Q disclosures

– Interest rates are moving higher, quickly – that’s cuts off the remaining poor credit, FHA borrowers who borrow money to put down the required 3.5% to get taxpayer subsidized mortgages

– Inventories are climbing, sales are hitting the wall, prices are dropping, foreclosures are going up again.

This is 2005/2006 all over again.   You can ignore reality, but you can’t ignore the consequences of reality.

My latest homebuilder short-sell idea has the potential to return at least $20,000 for every 1,000 shares sold short ($2000 per 100 shares):    Homebuilder Bear Reports

This market is hitting the wall very quickly.

 

 

14 thoughts on “The Entire Housing Market Hit A Wall In August

    1. Long-dated, out of the money puts. OR move your money to brokerage account that lets you short. Just means
      you need a margin account.

  1. Hey Dave, you are indeed correct that housing has hit a snag, but be aware of the possibility of a breakout in inflation causing a fairly quick reversal.

    1. Negative. Home values are driven by the amount of debt people can use to overpay for the home. High inflation will force interest rates through the roof, which means people can only buy a home with a smaller mortgage.

      Home values have been driven by the amount of monthly payment someone can afford. High inflation pole-axes that number, especially REAL median income declining.

      Real estate, over very long periods of time, is not a good hedge against inflation. Very long = 130 years.

      1. Dave, if you combine a rapid decline in the desire to hold cash, stagflation, and $2.5 trillion in excess reserves flooding the system, and you indeed have the ingredients for a new housing boom. Interest rates would rise, but most likely not enough to suffocate the market.

      2. Dave,

        When you say over a long time (=130 years) do you mean that at no time during that time was it a hedge against inflation, or looking at it over a 130 year span a hold for that duration would not be a hedge against inflation or?

        I tend to think that it was a hedge against inflation 01-06 and maybe 09 to 12-13 or so but due to the affordability factor (which you touched on) it is not anymore…

        I tend to look at markets as in who is the customer, where are they, how much can they afford, what is their incentive. For answers I have Debt Laden, hurting, not much and none.

        But what about farm land? Or rental properties, any ideas there? Do you think that as prices plummet and rates rise and lending stops that the housing market will just stagnate? that there will be no buyers at all relatively speaking?

        thanks,

        beep beep

        1. Over a 130 yr measurement period, Robert Shiller has presented the data, housing has not really kept up with the long run rate of inflation. And don’t forget, for much of that time houses were purchased with all cash and then 50% down was the norm. This 10% down bullshit the rest with debt is a product of the money printing/fiat currency/bubble era.

          We don’t know what will happen exactly when high inflation kicks in, but I would bet my dogs life it will annihilate housing values because it drastically reduces the amount of debt that can supported.

          Farmland – YES! That’s a bona fide hedge. But why? Because farm land produces commodities that are consumed/depleted and rise with inflation.

          Houses – NO, Farmland or oil wells – YES!!!!

  2. A House of Cards

    With home price inflation and real earnings in decline, the U.S. consumer is in no position to be an effective engine of growth.

    More broadly, yoy growth in ECRI’s U.S. Coincident Construction Index has dropped to a three-year low (not shown). Also, yoy growth in new building permits turned negative earlier this year for the first time since 2011. Thus, housing and construction activity is unlikely to be a significant driver of economic growth this year, consistent with our downturn call for construction sector growth last summer, when we declared that “growth in the construction sector is set to pull back further.”

    (see chart)
    https://www.businesscycle.com/ecri-news-events/news-details/economic-cycle-research-ecri-house-of-cards

  3. The clueless nitwits were touting record high home prices for an August in Houston, paying no attention to the stagnating sales for the last few months. As my industry is fond of saying, every day is a great day to buy a home!

    In two of the most popular master-planned communities in West Houston sales were actually DOWN 32 percent year-over-year. The reason is that builders abandoned the concept of building affordable homes the last few years to maximize profits. What’s available for sale now is overpriced crap for the most part. As I mentioned in my latest housing market report and video, fewer affordable homes led to a decline in sales.

    Who could have imagined!

    The latest rise in 10-Yr Treasury yields should do wonders for the mortgage purchase application index which is already down 12% YoY. Nothing like making already Unaffordable homes even more so. LOL!

    http://aaronlayman.com/2014/09/katy-texas-west-houston-real-estate-market-august-2014/

    1. Great read. What’s interesting about that is that Texas, like Denver, has been strong because of the oil/energy market. Denver led country in “price reduced” signs in July. The low price of oil will sink Texas real estate and the rapid decline in fracking will sink Denver r/e

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