The Coming Collapse in Housing

GoldSeek ^ | November 19, 2006 | Gary Shilling

[GodGunsGuts]

I am convinced that the housing bubble is gigantic and will burst before long with massive implications here and abroad. In fact, it's the key to the global economic outlook.

Setting the Scene

House prices in recent years have leaped well beyond their normal relationships to the CPI...

[Pelham]

What part of the country are you in?

Not every market is grossly out of line with long term price trends. But if you're out here in California, then I'd say you should be worried.

[Pelham]

That site might promote gold, but Shilling's article doesn't. If anything he recommends long Treasuries since he expects some deflation to result from the housing bubble coming to an end.

[expat_panama]

Thanks for the ping G; apparently getting housing sector info from GoldSeek is like asking the local Mac vendor what he thinks of windows, or researching Russian foreign policy at the University of Warsaw, or studying Catholic theology with the Masons, or --well, you get the idea.

Shilling intentionally made the sector look bad --he plotted all his historical prices in linear scale in order to really make things look like we're in some kind of crisis.  This kind of stuff is only useful for keeping the faithful in the flock; it's no good for actually proving something to anyone trying to gather facts.

In the meantime the construction sector is doing just as well as it's been for years.  We're really happy with building materials companies SHW, SIM, TXI.  True, precious metals were great a year ago, but I haven't seen anything seriously good in that area for quite a while now.

[Toddsterpatriot]

Well, you know that in the long run, Gold is an excellent investment, as a pound of gold still weighs as much today as it did 100 years ago.

Excellent point! A pound of gold can also still buy a pound of gold (minus 3% transaction costs).

[finnman69]

http://www.statesman.com/business/content/business/stories/statesmanhomes/11/19/19compare.html

“A year ago, Phoenix was one of the hottest markets in the country, with sales and prices running at record highs. The median home price hit $263,000. But up to a quarter of the sales were to investors, who began selling their properties wholesale when it became harder to flip them for a fast profit.”

“Now, existing home sales are down 34 percent, and new-home starts are off 18 percent from last year. Phoenix remains expensive. In 2005, first-time buyers could expect to pay as much as $230,000 for a new house. These days, the figure is closer to $200,000. Some builders are piling on incentives.”

“Before the market started cooling, there were few homes valued at less than $200,000, said Ben Sage, Phoenix office director for Metrostudy, which tracks new home markets around the country. ‘As the market has been adjusting, home builders have been lowering prices,’ Sage said.”


http://money.cnn.com/2006/11/20/real_estate/summer_house_prices_cool/index.htm?postversion=2006112014

Home prices down 1.2% in third quarter
Rustbelt markets and Florida lead the decline. Sales volume plummets nearly 13%.

Prices in the Northeast, down 4.8 percent, fell the most. Prices dropped 2.6 percent in the Midwest, 0.9 percent in the West and 0.1 percent in the South.

Detroit market, buffeted by auto industry layoffs, suffered the largest loss; prices there plummeted 10.5 percent, to a median of $154,100.

Other rustbelt areas with drops included Canton, Ohio (down 9.2 percent to $112,300), Akron (down 8.4 percent to $118,200) and Bloomington, Illinois (down 8.5 percent to $156,300).

Three Florida metro areas were hit hard by price drops. In Sarasota, the median home now sells for $320,700, off a whopping 9.4 percent from last year; Palm Bay/Melbourne/Titusville prices sank 9 percent to $193,600; and Cape Coral prices plunged 8 percent to $255,400.

---
Even more dramatic than the price drops was the fall in the number of sales. Nationally, the total numbers for sales of existing single family homes, condos and co-ops went down 12.7 percent compared with the third quarter of 2005. The decline was off the charts in Nevada, down 38 percent. Arizona, ( - 36 percent), Florida (- 34.2 percent), California (- 28.6 percent), Hawaii (- 25.8 percent) and Virginia (- 24.4 percent) also experienced steep drops.

[GodGunsGuts]

Hi Expat,

All is not rosy, and it's only going to get worse as housing has nowhere to go but down.

Housing construction drops in October

http://news.yahoo.com/s/ap/20061117/ap_on_bi_go_ec_fi/economy

[GodGunsGuts]

Thanks for the articles, finman69. They will be added to my growing list of articles on housing that all point in one direction...down.

[irishjuggler]

Shilling is, or was, a Yale prof who warned of the stock market bubble long before it popped.

You're thinking of Robert Shiller, not Gary Shilling.

[Drago]

I predict that Real Estate will continue to appreciate at a rate greater than inflation like it has for the past 40 years (except for 1989)...see 1st link. Gold on the other hand didn't do as well...see 2nd link.

http://www.realestateabc.com/graphs/natlmedian.htm

http://www.kitco.com/scripts/hist_charts/yearly_graphs.plx

[Pelham]

I think you're right. Thanks for the correction.

[expat_panama]

housing has nowhere to go but down

That's the same stuff we went over back in post 24, that the people at GoldMoney and DollarCollapse are in business to make gold look better than other investments, and AP's in business to make democrats look good.  

Just yesterday the leftpress was talking about how now that we got Dems in congress we're seeing pay increases like we haven't had since the Clinton boom years.  They'll be describing housing that way soon, as housing starts are about average for the long term, and still better than the Clinton boom years.

The reason successful investors have ignored the dollarcollaps's graph isn't just because incomes are up.  IMO it's because wealth is measured not my dividing income by debt, but by subtracting debts from assets --and we all know that net-worth balances are at all time highs.

[GodGunsGuts]

No matter which way you slice it, we are seeing a STEEP decrease in housing starts, they have already dropped down below 2000 levels, and they will continue to slide for several years IMHO:

[expat_panama]

No matter which way you slice it, we are seeing a STEEP decrease in housing starts...

OK, you're more impressed with how big a graph is than what it does.  I usually don't do this, but to settle a dispute I can show you both:

Maybe your graph was big, but there was hardly anything you could do with it except hold it and admire it all by yourself..

Size isn't everything.

[GodGunsGuts]

That's literally the size the graph came in. Check the properties and see for yourself.

[Petronski]

Figures these guys are trying to sell gold.

That's the entire raison d'etre of the FR goldbuggery and gloomwhore lobbies.

[Petronski]

Gigi's gutless post about you (sans ping, of course):

You might want to email "Torie". He seems to be an expert on the subject, and he doesn't think housing will decline nearly as much as I do. Still, he might be able to give you some good, unbiased advise as to options if the bottom threatens to drop out--GGG

[GodGunsGuts]

How is that gutless? I was recommending the guy. Unlike you, he is honest and he knows the biz. I think you are loosing all connection with reality, Pedro.

[Petronski]

How is that gutless?

Because, although you must ping those you mention, you don't want an expert like Torie on your threads, because she actually is an expert, and her critiques of your "expertise" have been scathing.

[GodGunsGuts]

I welcome people like Torie on any thread. I actually learn from people like that, even if we don't agree on everything. It figures, when you actually do try to make a point, you blow it big time. No wonder you stick to muttering incomprehensibles.