For more evidence of the current deflationary trend look no further than the real estate market.
If you take a quick look at the chart above and still think a housing recovery is upon us, then the mainstream media has detonated a Weapon of Mass Distraction in your brain and you can’t be saved.
Now that the $8000 home buyer tax credit has disappeared, guess what happens?
That’s right, the housing market will continue on its decline trajectory.
Homes are a debt based asset, and the easy creation of money from 2001 to 2006 led to massive price increases – we’re talking 50% to 100% asset value rise in an asset that remained fairly price stable for about 100 years.
The system is now trying to correct this extreme upward price swing. In the last couple of years the government tried to counteract the corrective deflationary pressures in an attempt to “stabilize” housing prices at overblown 2007 levels by making mortgages inexpensive, providing tax credits and loan modifications.
All of these billion dollar programs have failed. FAILED.
In April, the Federal government told us that home sales were up 27%. We were told this was a “grand slam” for the housing recovery.
We warned you that this was a complete fabrication driven by the aforementioned policies and that we could expect a return to decreasing home sales and prices this summer.
Today we learn that the month of May was a strike out for home sales:
The U.S. housing market is in crisis.
A day after a disappointing read on the market for existing homes, the government said Wednesday that sales of new homes fell to their lowest level on record last month, a potentially crushing blow for an economy that is still looking for its footing.
The Commerce Department said new home Sales fell by a stunning 32.7% in May, to a seasonally adjusted rate of 300,000. Sales were expected to be off sharply as a government program to prop up the market expired, but the results were far worse than even the most pessimistic outlooks.
Housing is nowhere near recovery. We’ve compared our housing market to Japan’s 1990 real estate bubble pop in prior posts. From the top to the bottom of their bust, Japanese real estate lost 75% adjusted for inflation. While we may not exactly duplicate Japan, it is definitely possible. It’s happened in Japan, it happened in the Great Depression, and we can fully expect another significant leg down going forward.
Do not be surprised if housing prices collapse another 20% to 40% from here. The pendulum is swinging from one extreme to the other and their will be violent volatility along the way.
Expect home sales to remain depressed, in real terms, for the next decade, perhaps beyond.
Hat tip Patriot One
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I remember about 20 years ago reading that “we will someday be able to buy a home with a handfull of gold”.
It looks like that prediction is coming true.
Now if I can just find a deal on a small farm in north-central FL or GA…
Good article (I love it when someone calls the Government cheerleaders on their follies).
As you said, we are nowhere bottom. Worse, this all but ensures another massive stimulus that will FAIL. In 6-12 months time there will be significantly more money sloshing around, and if we go into a deflationary tailspin again later in the year like so many prognosticators keep saying, my guess is there will be too much money chasing too few goods and we’ll go pretty quickly from deflation into full-blown hyper-inflation. And this will happen due to the latent effect of printing money vs. price appreciation. By the time the prices go up too fast, there’s no going back.
Once oil spikes (kind of think it has too again, especially due to the Gulf), it’s game over. A big factor in this is how successful Obama will be with his 6-month drilling moratorium, because just like inflation latency, by the time we see much higher prices in oil it’s going to be too late to go back to some semblance of a normal functioning economy.
I got a call from a friend who had been “flipping” houses in Las Vegas for his employer, an investment company for the past year. He told me he had to close the operation after a no sales month of May (after the $8K tax credit expired).
It stands to reason that Obama and friends will need to keep the economy from tanking until after this November’s elections or his party’s congressional base will be decimated.
The unintended consequences of even more stimulus and hand-outs are anyone’s guess, except it won’t be pretty.
But what the hell, its too late to save the economy anyway, so let the games begin (or continue)!
In my state (Connecticut), there are a lot of beneficiaries of state jobs, contracts and related industries driven by this money ($75 million taxpayer $ going to the Mohegan Sun casino from Chris Dodd). People seem to be in denial of the hard times ahead and will be broadsided when it happens.
There are 2 new houses being built within a half mile of my house and I am wondering if they are investments or owner-occupant places.
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Compare this drop to the mid-year peak of 1,283,000 homes sold in 2005, and you have a drop closer to 73% in home sales.(Search,,,sprott july 2009,,,).The government will continue to manipulate the numbers as long as they can.Those of us who post here know the worst is yet to come.
Try to get out of debt, and have a yardsale to turn the stuff you don’t use anymore into cash/silver/gold.The money you sock away now could put food on the table later.Good luck too all.
Deflation, you mean “someday buy an ounce of gold for a handful of dollar bills.” American industry is terminal, credit is tapped, the consumer is DOA suffocated by credit. By 2017, NYSE target 800, gold $150, silver $5. Ha, even Walmart will soon be on the ropes, operating at a laughable margin.
When dollars seem to have disappeared from circulation and 95% of the population can’t obtain any more credit, who will buy your $1,260 gold bars? I hope everything works out, but it can’t without consumers that actually consume, they must have cash and credit. I see more and more people at the store using government assistance.
The government should stop cutting checks for moochers. Make all those unemployed bankrupt live in tent cities and eat at the soup kitchen. They shouldn’t have a pocket full of spending cash smoking pot on their front porch all day and refuse to look for employment.
Our federal government is a joke. ÂÂ
J_CT–I live in CT , too. I too feel that the hammer is going to fall big time on this state. Where I live people are still in LaLa land. Homes that I wouldn’t buy for $140K are selling for $190-230K. It’s ridiculous. It seems that we’ve been blessed so far (compared to the mid-west, Ca, Fl, etc.) but now it’s our time. In this second down turn coming up the criminals in D.C. will have to open the flood gates of phony money, especially with the 2010 elections coming up. I can’t see any other course of action for those idiots.
Sam Bitter,
Watch your karma, be a better person. There is still time for you to change…
Martin Armstron nailed this many months ago.
He tied this cycle to the fall of the Roman Empire.
See any similarities now that Nero has called his general home from Afghanistan?
Sam Bitter said..”The Government should stop cutting checks for moochers”. Hey, that’s a great idea. But let’s not mention cutting checks for all those 3rd, 4th, 5th, 6th, and 7th generation welfare recipients! Even though the folks on unemployment ACTUALLY WORKED, they should get their bene’s cut, Right? Some guy who worked 20 years at some mundane, but tolerable job and always paid his taxes? Screw him! And now he’s 38 years old and can’t find a decent job? Yeah, that’s right! Screw him! Let him suffer. Why, they should just assign a job for him, right? Borrow the USSR’s playbook and force him to do something or he goes to a slave camp. Geez, I’m so proud of my fellow Americans! We really know how to stick together!
I looked on zillow 2 weeks ago, and it said my house was 148k, looked again today 138k WOW . I bought the house 20 years ago for 92k,, bummer. It really doesn’t matter to me , this is where I live so the house is worth zero to me
I saw a great bumper sticker the other day, it said
Vote democrate, its better than working :).
Scar….Here is the problem with your view.  Wages are trying to stabilize at a lower level because of lack of demand but Gubment keeps them artifically high by continuing unemployment payments.  Can’t tell you how many times I have heard someone say they can’t take that job because they make almost that much on unemployment.  When labor gets cheaper more people will be employed.  If the employment situation continues or gets worse, then unemployment payments become retirement.
Any which way we are toast.
Obama can’t do anything right, what a POS he really is.
egore,
Watch your karma, especially if you still have a job and/or are enjoying the comforts of life. What you affirm here is not the way it is, unless you join that crowd of people. It’s none of their fault, the situation they got caught in. Be a more understanding and a more compassionate person, it will make this a much better world. It’s OK to help a neighbor who is in need, it will only bring us more happiness to our own lives and homes. Do good to others, regardless to who. Like Mother Theresa said, “At the end, it’s between me and God…” It’s a good example to teach our children. Life…is full of surprises, never say “From this water I will never taste!”. We are nothing in this Universe. Why so much arrogance? Please be a better person! If you are an American, the one in need is your very close brother or sister, another American!
Bravo Mary !
The smug judgemental attitudes being reflected on this and many other blogs afirm ;” it is easier for a camel to go through the eye of a needle than a rich man to see Paradise”
Did any of the smug finger pointers give any consideration to the fact that America is being tested by the Divine?
http://www.nakedcapitalism.com/2010/06/mike-konczal-underwater-and-the-strategic-default-pr-campaign-what-we-got-when-we-didn%e2%80%99t-get-cramdown.html