The striking Case-Shiller regional charts shown below, courtesy of MHanson.com, make Mark Hanson angry: “so, 2006/2007 was the largest house price bubble ever, but there is nothing to see here in 2017?” and sarcastically points out that “if this isn’t a house price bubble, I would hate to see one.”
His bottom line:
If 2006/07 was the peak of the largest housing bubble in history with affordability never better vis a’ vis exotic loans; easy availability of credit; unemployment in the 4%’s; the total workforce at record highs; and growing wages, then what do you call “now” with house prices at or above 2006 levels; worse affordability; tighter credit; higher unemployment; a weakening total workforce; and shrinking wages? Whatever you call it, it’s a greater thing than the Bubble 1.0 peak.
And visually:
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Below are some further observations and “red-flags” from Hanson on Peak Housing, after the latest new home sales data:
- Sharp downward sales revisions for past 3-months.
- Huge downward price revisions for past 3-months, lower by 10%, 5% and 3%, respectively, exactly as I predicted on last month’s release.
- Builders maxed out on pricing power; Med & avg prices flat for 2-years.
- The all-important Southern Region was flat YY; the South makes up over half of all sales in the nation, and drives builder demand and profits.
- 100% of the June YY sales gain came from the Western Region, which doesn’t jibe with the weak price performance and will likely be revised lower next month.
- Income required to buy the avg priced builder house is at historical highs and has completely diverged from the multi-decade trend line.
- Historically low growth & rebound relative to resales suggest “lack of supply” meme in the Existing Sales market is over-stated.
As he says, “Peak builder is here.”
Finally some other quantitative and qualitative observations from the housing guru:
1) New Home Sales “up to” 1995 levels after $15 TRILLION in debt and Fed liquidity aimed largely at the sector.
2) Builder pricing power largely flat for 2-years.
3) Income required to buy the average priced builder house has completely diverged from the multi-decade trend line. This obviously explains why sales are only at 600k SAAR now vs 1.2 million in Bubble 1.0. Reversion to this mean will occur…either thru a sharp rise in income; new exotic loan programs, which make payment less; or house prices dropping.
4) Last time builders were this euphoric was the peak of the biggest credit bubble in history.
5) It’s too bad the public isn’t as euphoric about buying as the builders think they are.
I just moved into a new 250K house . The down payment was a little shy of 100K .The neighborhood is sold out . I’m still trying to figure out how the neighbors on both sides of me can afford the houses they are in.
Housing bubble..yep…but so is everything else . I can hold on to the house a long time….if I need to abandon it it’ll be because of something far worse than a bubble popping .
My house value came back to even with purchase price 6 years after the 2008 great recession, now up 10% over purchase price after the last three years – so what! I paid it off about five years ago, I plan to be here for many more until retirement. I’m out of debt and plan to stay that way regardless of the MSM fake news stories about how great everything is. The charts above, the stock markets, all look wonderful. The debt charts seen on TBP and other sites scare the crap out of me.
I bought in 2006 as the last bubble was popping. At the time I thought I got a smoking deal as it was 15% off the original ask and had been on the market for almost a year. It took until about 2016 before the market returned to where I had purchased it at. That includes a lot of home improvement, like a brand new kitchen. I know because I refi’d and had to have an appraisal. So all-in-all I don’t think I’m in a “bubble” per-se but who cares about bubbles when you’re in a 15yr mortgage and intend to stay put for well beyond the term of the note.
No bubble to see here.
1) homes are not being built in sufficient numbers.
2) housing will be compared to Japanese housing. Small, cramped, multi-family and unit on top of unit.
Sorry folks, it really is different this time. I know because I know everything.
Wip His most extremely deluxe self has spoken
I have been embracing my sarcastic side lately. It sure feels like it’s different this time. I live in the DC area and they simply are not building anything affordable. Only apartments or really expensive condos with high condo fees. Sucks. Very different from the last high in home prices. The last time (08′), there was building (homes) as far as the eye could see. If felt that way anyway.