Any glimmer of hope that the housing market will stage a recovery in the upcoming months has vanished, thanks to the recent spate of bad economic news that has been making headlines over the past several weeks.
According to the latest analysis of home price trends in 384 markets based on the Fiserv/Case-Shiller Indexes, it will be well into the first quarter of 2013 before median home prices across the nation will even be on par with prices from the first quarter of this year.
“Every piece of bad news causes more people to be more nervous,” said David Stiff, chief economist for Fiserv, which provides information management and analyses data for the financial services industry. “The stabilization of housing markets depends greatly on household confidence in the strength of the economic recovery. Unfortunately, recent economic news has done little to build confidence.”
There still, however, is no shortage of housing inventory. More than 3.75 million existing homes in June alone were on the market, according to the National Association of Realtors. At the latest rate of sales, it would take 9.5 months to exhaust that inventory, about 50% longer than what NAR considers a healthy housing market.
“I don’t think we’ll see an increase in sales until we see the economy improving,” said Fiserv’s Stiff.
CNN et. al. would have us believe that the housing (and economic) recovery have stalled because of a “recent spate of bad economic news.” The fact is, however, that the economic news has been bad for over three years – and that trend will not only continue, but accelerate.
Housing will not reach recovery until the economy improves, and that means we’re looking at about five to ten years at best. Yes, our view is contrary to mainstream analysis, but we have to remember that we not only never came out of the 2008/2009 recession, we’re actually in Depression territory, which means we’re looking at not months, but years, potentially decades. In November of 2009 we wrote:
Some estimates have forecasted that real estate is set to decline another 10% to 15%. But, what if the next wave collapses our real estate market another 30%, or even 50%? Doesn’t sound possible does it? For non-believers, we direct your attention to the Japanese real estate bubble of the 1990′s compared to the USA through 2008.
From top to bottom, adjusted for inflation, housing prices in Japan collapsed a whopping 75%. Hard to believe. But, it happened. It also happened during the first great depression, with land prices dropping so much that they were 90% of their pre-depression highs.
Economist and cyclical analyst Martin Armstrong gave us A Forecast for Real Estate, in which he outlined the reasons for the decline, the severity and volatility to come, and the time line of events. His forecast is just as timely today as it was in 2009:
“There is no delicate way to put this right now, but we are looking at a serious economic depression in terms of values of real estate. We have reached a crossroad that is very profound and if we do not at least try to comprehend the problem, we may be facing the worst economic implosion that has taken place in centuries. Thanks to the New York Investment Banks, they helped to leverage real estate far beyond anything that took place in history, and we are going to pay the price.”
“The FIRST golden rule, “Presume Nothing” is so profound, far too many people just go charging forward. It has been the presumption since my childhood, that real estate always rises in the long-term and thus is a great asset constituting the majority of the average person’s wealth.
What if the presumption is wrong?
Now we are entering into a subject-matter that is so fundamental, it starts to get a bit scary. You will now see what I have been very concerned about after discovering this serious problem decades ago.
I have written about the Debt Crisis that was faced in Athens by Solon (630-530BC) and Julius Caesar (100-44BC). Now these history lessons will start to pay-off. What was it causing the debt crisis? Real Estate! This is critical to understand. It was not the public debt alone, but the private debt involving REAL ESTATE!”
Armstrong’s analysis suggests that we may see a (small) bounce in real estate from 2012 through 2015, and then a total re-collapse of the real estate market, which he expects to contract for 26 years into 2033.
For those who think it’s not possible – just look to history. It is not only possible, but quite likely that the sovereign debt crisis faced by the United States and the personal debt destruction to individuals is so severe that the fallout can last for decades – not months.
Even our own Treasury Secretary, in a surprising moment of truth, warned Americans to get ready for:
I think it’s going to take a long time still. This is a very tough economy. And I think for a lot of people it’s going to be – it’s going to feel very hard, harder than anything they’ve experienced in their lifetime now, for some time to come.
-Treasury Secretary Tim Geithner, Meet the Press, July 10, 2011
These are difficult concepts to grasp for a society hellbent on instant gratification and weekly fad and trend changes. But in the grand scheme of things natural cycles, including financial, economic and political cycles, last for years, sometimes entire lifetimes.
We can brace for the initial impact with short-term preparations, but be sure to consider long-term SHTF planning that includes everything from self sustainable food and energy production to skills development for a future economy that may be starkly different from today’s.