Evidence The Housing Bubble Is Bursting?: “Home Sellers Are Slashing Prices At The Highest Rate In At Least Eight Years”

The housing market indicated that a crisis was coming in 2008.  Is the same thing happening once again in 2018?  For several years, the housing market has been one of the bright spots for the U.S. economy.  Home prices, especially in the hottest markets on the east and west coasts, had been soaring.  But now that has completely changed, and home sellers are cutting prices at a pace that we have not seen since the last recession.  In case you are wondering, this is definitely a major red flag for the economy.  According to CNBC, home sellers are “slashing prices at the highest rate in at least eight years”…

After three years of soaring home prices, the heat is coming off the U.S. housing market. Home sellers are slashing prices at the highest rate in at least eight years, especially in the West, where the price gains were hottest.

It is quite interesting that prices are being cut fastest in the markets that were once the hottest, because that is exactly what happened during the subprime mortgage meltdown in 2008 too.

In a previous article, I documented the fact that experts were warning that “the U.S. housing market looks headed for its worst slowdown in years”, but even I was stunned by how bad these new numbers are.

According to Redfin, more than one out of every four homes for sale in America had a price drop within the most recent four week period…

In the four weeks ended Sept. 16, more than one-quarter of the homes listed for sale had a price drop, according to Redfin, a real estate brokerage. That is the highest level since the company began tracking the metric in 2010. Redfin defines a price drop as a reduction in the list price of more than 1 percent and less than 50 percent.

That is absolutely crazy.

I have never even heard of a number anywhere close to that in a 30 day period.

Of course the reason why prices are being dropped is because homes are not selling.  The supply of homes available for sale is shooting up, and that is good news for buyers but really bad news for sellers.

It could be argued that home prices needed to come down because they had gotten ridiculously high in recent months, and I don’t think that there are too many people that would argue with that.

But is this just an “adjustment”, or is this the beginning of another crisis for the housing market?

Just like a decade ago, millions of American families have really stretched themselves financially to get into homes that they really can’t afford.  If a new economic downturn results in large numbers of Americans losing their jobs, we are once again going to see mortgage defaults rise to stunning heights.

We live at a time when the middle class is shrinking and most families are barely making it from month to month.  The cost of living is steadily rising, but paychecks are not, and that is resulting in a huge middle class squeeze.  I really like how my good friend MN Gordon made this point in his most recent article…

The general burden of the American worker is the daily task of squaring the difference between the booming economy reported by the government bureaus and the dreary economy reported in their biweekly paychecks. There is sound reason to believe that this task, this burden of the American worker, has been reduced to some sort of practical joke. An exhausting game of chase the wild goose.

How is it that the economy’s been growing for nearly a decade straight, but the average worker’s seen no meaningful increase in their income? Have workers really been sprinting in place this entire time? How did they end up in this ridiculous situation?

The fact is, for the American worker, America’s brand of a centrally planned economy doesn’t pay. The dual impediments of fake money and regulatory madness apply exactions which cannot be overcome. There are claims to the fruits of one’s labors long before they’ve been earned.

The economy, in other words, has been rigged. The value that workers produce flows to Washington and Wall Street, where it’s siphoned off and misallocated to the cadre of officials, cronies, and big bankers. What’s left is spent to merely keep the lights on, the car running, and food upon the table.

And unfortunately, things are likely to only go downhill from here.

The trade war is really starting to take a toll on the global economy, and it continues to escalate.  Back during the Great Depression we faced a similar scenario, and we would be wise to learn from history.  In a recent post, Robert Wenzel shared a quote from Dr. Benjamin M. Anderson that was pulled from his book entitled “Economics and the Public Welfare: A Financial and Economic History of the United States, 1914-1946”…

[T]here came another folly of government intervention in 1930 transcending all the rest in significance. In a world staggering under a load of international debt which could be carried only if countries under pressure could produce goods and export them to their creditors, we, the great creditor nation of the world, with tariffs already far too high, raised our tariffs again. The Hawley-Smoot Tariff Act of June 1930 was the crowning folly of the who period from 1920 to 1933….

Protectionism ran wild all over the world.  Markets were cut off.  Trade lines were narrowed.  Unemployment in the export industries all over the world grew with great rapidity, and the prices of export commodities, notably farm commodities in the United States, dropped with ominous rapidity….

The dangers of this measure were so well understood in financial circles that, up to the very last, the New York financial district retained hope the President Hoover would veto the tariff bill.  But late on Sunday, June 15, it was announced that he would sign the bill. This was headline news Monday morning. The stock market broke twelve points in the New York Time averages that day and the industrials broke nearly twenty points. The market, not the President, was right.

Even though the stock market has been booming, everything else appears to indicate that the U.S. economy is slowing down.

If home prices continue to fall precipitously, that is going to put even more pressure on the system, and it won’t be too long before we reach a breaking point.

Fonte: qui

About the author: Michael Snyder is a nationally syndicated writer, media personality and political activist. He is publisher of The Most Important News and the author of four books including The Beginning Of The End and Living A Life That Really Matters.

We're All Speculators Now!

When the herd thunders off the cliff, most participants are trapped in the stampede...

One of the most perverse consequences of the central banks "saving the world" (i.e. saving banks and the super-wealthy) is the destruction of low-risk investments: we're all speculators now, whether we know it or acknowledge it.

The problem is very few of us have the expertise and experience to be successful speculators, i.e. successfully manage treacherously high-risk markets. Here's the choice facing money managers of pension funds and individuals alike: either invest in a safe low-risk asset such as Treasury bonds and lose money every year, as the yield doesn't even match inflation, or accept the extraordinarily high risks of boom-bust bubble assets such as junk bonds, stocks, real estate, etc.

The core middle-class asset is the family home. Back in the pre-financialization era (pre-1982), buying a house and paying down the mortgage to build home equity was the equivalent of a savings account, with the added bonus of the potential for modest appreciation if you happened to buy in a desirable region.

In the late 1990s, the stable, boring market for mortgages was fully financialized and globalized, turning a relatively safe investment and debt market into a speculative commodity. We all know the results: with the explosion of easy access to unlimited credit via HELOCs (home equity lines of credit), liar loans (no-document mortgages), re-financing, etc., the hot credit-money pouring into housing inflated a stupendous bubble that subsequently popped, as all credit-asset bubbles eventually do, with devastating consequences for everyone who reckoned their success in a rising market was a permanent feature of the era and / or evidence of their financial genius.

Highly volatile speculative bubbles are notoriously humbling, even for experienced traders. Buy low and sell high sound easy, but when the herd is running and animal spirits are euphoric, only the most disciplined speculators and the lucky few who have to sell exit near the top of the bubble.

The "safety" of investments in housing, commercial real estate, stocks, corporate bonds, emerging markets, etc., is illusory: these are now inherently risky markets, and it's difficult to hedge these risks. (Not many participants knpw how to hedge housing, commercial real estate, etc.)

In an environment in which participants have been richly rewarded for believing that "the Fed has our backs," i.e. central banks will never let risk-assets drop because they understand pension funds, insurers, banks, etc. will implode if the risk-asset bubbles pop, few see the need to bother with hedges, as hedges cost money and reduce yields.

As a result, few participants are fully hedged. Most participants are buck-naked in terms of exposure to risk, and once the tide goes out we'll find out how few are hedged against bubbles popping.

Financial markets are not linear by nature, so predictably rising markets are atypical. Financial markets are intrinsically non-linear, meaning that the dynamics are inter-connected and prone to asymmetric events in which a small input triggers an outsized output such as a crash.

In the fantasy world conjured by central bank stimulus, markets never go down and economies never slide into recession. Financial engineering has eradicated risk. But the dynamics interact in ways that can't be controlled. As inflation heats up globally, central banks are being forced to "normalize" interest rates and yields, and political pressure to stop saving banks and the super-wealthy is mounting.

All speculative markets deflate, slowly or suddenly, depending on the marginal buyers and sellers. The shakier the marginal participants, the greater the likelihood that the speculative bubble will pop with a suddenness that surprises the vast majority of participants.

Take a look at stock valuations as a percentage of GDP, i.e. the real economy: stocks are clearly in a bubble.

The national Case-Shiller housing price index: bubble.

The Seattle Case-Shiller housing price index: super-bubble.

The Dallas Case-Shiller housing price index: super-duper-bubble.

You get the point: virtually every supposedly low-risk asset class is actually a super-risky, super-dangerous bubble. Speculation drives valuations far beyond financial rationality because we're herd animals and unearned gains supercharge our greed, especially when we see all sorts of undeserving people making fortunes for doing nothing but running with the herd.

So when the herd thunders off the cliff, most participants are trapped in the stampede. Very few exited far from the cliff, and even fewer will wait patiently for the dust to settle before moving cash into assets.

Risk has a knack for hiding in plain sight. Few people look for it, and even fewer recognize it. Only a handful act on it.

Authored by Charles Hugh Smith via OfTwoMinds blog

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