Is Another Housing Crash Imminent?

Housing Crash

Real estate prices are predicted to fall between 15%-40% or more in the next 1 to 3 years

Mortgage applications have been falling steadily for over a year

pool-home-waterfallTypical Pool with Hot Tub in Florida Home During Housing Peak

Homebuilders may be optimistic on the housing front, but the rest of us shouldn’t be. It seems they always get ahead of themselves with optimism, and then end up holding the bag, like when the last crash happened.

In the few years leading up to 2007, I remember the plethora of new developments going up all around where I live in south Florida, with brightly-colored sales flags and dozens of beautifully decorated model homes in endless developments.

On the weekends, just for entertainment, I’d spend a whole afternoon looking through them, faking that I was a legitimate buyer. Elaborately decorated, the spectacle of these $300,000 to million dollar marvels was breathtaking, as I was garnering free home-decorating ideas.

With no expense spared, these homes were decorating fantasies; from breath-taking chandeliers to  gorgeous pools with elaborate waterfalls cascading over huge rock displays. As you ambled from one house to another,  even “fake” rocks outside piped upbeat music. It was a glorious time…

And then the crash hit – BOOM! Prices literally fell 50% or more, seemingly overnight. The nightmare of the housing crash which heralded in the Great Recession began. Now, some experts say another housing crash is looming.

Let’s explore that premise.

Young people, specifically millennials, are not buying homes. Simply put, they don’t have the money. Many are saddled with high student loan debts and they are experiencing much higher unemployment rates than the older baby boom generation.


Student Loan Debt Increases from 2005-2014

Because of their financial woes, 31% of 18-34 year-olds are forced to live with their parents. They are considered a key demographic for first-time home buyers. And it’s not that the rest of the population can afford a down payment either, because wages are down across the board.In addition, the following data points to a downturn in the housing market:

Percentage of Homes that Had to Drop Their Asking Price
During Peak Summer Month of July

Real estate prices are predicted to fall between 15%-40% or more in the next 1 to 3 years

Joshua Pollard, who in February 2005-2013, was Vice President of US Housing at Goldman Sachs, is so concerned, he has submitted a report to the President. (Not sure why he thinks he cares, but anyway…)

In his report released on September 17,  Pollard has forecasted an imminent 15% decline in home prices over the next three years. In the report he states,

“…we note that each 1% increase in mortgage rates drops home values by 4%.  At a 2% fed funds rate, where Fed officials and investors expect to be by the end of 2016,
today’s over-valuation of 12% grows to 20%.

House prices are 12% overvalued today. They have already started to decline.
Today’s mis-valuation matches the excess of 2006-07, just before the Great Recession. Respectfully, the United States can not afford another housing driven recession…
5 of the last 7 US recessions were led by a weakening housing market…
I am lamentably confident that home prices will fall by 15% within three years.”

And on another sour note, I present Harry Dent’s analysis. Dent writes an economic newsletter that reviews the economy in the US and around the world through demographic trends focusing on predictable consumer spending patterns, as well as financial markets, and has written nine books, of which two recent ones have been bestsellers.

“Don’t even think about buying a home (or worse an office) until at least early 2017.”

housing-bubblr

From his latest book The Demographic Cliff, Harry Dent says,

“In Chapter 3 of The Demographic Cliff, I explain why the housing market will never be the same in this post-bubble era. We’re approaching the point when there will be more sellers from the aging of the massive baby boom generation than younger buyers from the millennial generation that peak between age 37 and 41.

The numbers are similar to workforce growth where I subtract retirees from new tenants. For housing, I subtract the sellers at age 79 from the peak buyers at age 41 and then I can calculate “net” demand for housing for decades into the future.

Net demand has been falling since 2000, despite a slight bounce up in 2014. That small spike was almost in line with the slight rebound home prices had in 2012.

Once we slide into 2015, it will fall again and hit negative net demand from 2029 to 2039. Once there are literally more sellers than buyers, we won’t need any new homes built!

Housing should slow from 2015 forward — and economists are more confident than ever that we are in a sustainable recovery. The most affluent households also peak this year and will go off the “demographic cliff” like the average household did after 2007.

Once I describe a fall in real estate worse than the one that happened during the years of 1925-1933, I find it quite easy to talk younger households out of buying a home. But it is still proving difficult for me to talk older households out of buying a house.”

Principle #5 of bubbles (page 146, The Demographic Cliff) states:


“Bubbles tend to go back to where they started or a bit lower.
Real estate prices will fall at least 40% from where they are now.
Don’t even think about buying a home (or worse an office) until at least early 2017.
Let the coming stock crash and depression see its first and likely worst phase.”

So what’s all this talk about the great housing market? Yes, housing has recovered significantly since the housing crash of 2007, but is now poised for another similar crash, as all economic signs point towards a continuing economic decline.

If you are considering buying a home now, it is probably not a good move, unless it is a foreclosure or a short sale, and a REALLY good deal. If a crash occurs, housing prices could fall by 15%-40% or more in the next couple of years.

Article authored by Carol Serpa. You can find the original story right here.

2 thoughts on “Is Another Housing Crash Imminent?”

  1. The reason housing prices fall is a lack of willing and able buyers.
    The reason we have less qualified buyers is that the wages have fallen over the last 10-20 years.
    The rule of thumb is that a buyer needs to spend no more than 1/3 of his or her net income over a month’s time on a housing payment. If the payment is over that, the house will more than likely be foreclosed on soon. Is the car payed off? That is a debt all people have nowadays.

    Add in the number of people that no longer have a decent job and the picture is complete.
    No matter what else happens, people need a place to live.
    Especially in climates where the temperatures go below zero for a month or more at a time. Usually right after Christmas, the utility payments double or triple until March or April.
    The financial position of most people is critical anyway. A lot depend on income tax returns to survive that period of time.

    My own measure is that you should not pay more than 1/4 of your net income per month on housing. !/4 of that income should go to keep reliable transportation. That leaves 50% of your income for everything else. It doesn’t work that way anymore.
    The people at the top have gotten exceedingly greedy. They have raised the price of things so that there is no more income left to pay anything but the basic bills.
    One author suggested a $15 minimum wage. He wasn’t far wrong in his assessment of how much a poor person needs to live. The problem is that income takes everyone off the welfare system You would need 32,000 a year to even match the benefits a poor person might be eligible for if they stay below a certain income level. So the poor wise people try to stay below the wire.
    Anyone owning a house is unlikely to qualify for real welfare benefits. So there is a huge population of people on the edge of that wire. Below it they qualify. Above it they don’t. Those people do not buy houses.
    This entire system is based on people not being able to make a decent living wage.
    President Bush even pushed the Veterans into the system by making people not qualified for VA benefits above a certain wage income. Even though they earned it by risking their life in the service to their country. The entire system is based on a form of communism. If you make over a certain amount you no longer qualify.
    I mention this because by going to such a system, the U.S. Government is sponsoring low income people instead of giving benefits to everyone on an equal basis.
    That is what I believe to be the basic problem with housing. Too many people now qualify for welfare because the basic wage structure of this country has broken down.
    This is not their fault. It is the fault of the nation for pushing the middle class out of the equation.
    In the last 50 years or so, the middle class has been destroyed by a lack of anyone’s ability to negotiate a living wage. It has been pushed by world wide competition and people living abroad that do not live under the same wage structure as us. The currency exchange is all wrong. They live where the cost of living is much lower than here on a local basis. So these foreigners can offer a much more competitive product produced there than we can here
    What companies want is us to go to the same standard of living as say Taiwan or Korea.
    ‘Not to mention India and China, places where wages are dirt cheap. The currency exchange is at fault here.
    The basic vulnerability of low wages abroad is at any time that country can nationalize the company working in their country. The transportation factor raises the base cost of doing business as well. Not enough by far for us to compete here.
    So who did these things to us. The first President Bush and Bill Clinton betrayed most of us in this regard.

    The Unions were shoved down by a National Labor Relations Board that was basically pro-business and did not take past precident into account when making decisions. In plain language we were sold down the river.
    The only way to change any of this is to change our currency exchange so that workers abroad are on an equal footing with ourselves. This was done in the past with tariffs. That will work over time. But right now it would bankrupt the average American.
    The fact is we are going to have to make a major overhaul of the entire system before this occurs.
    I do not see the parasites in Congress making the rightr decisions to make this happen.
    So the only way any of this will change is if we change every seat in Congress and every one of these people.

    So live with it. It is not going to happen in our lifetimes without the entire house of cards falling. At that time, these same people will run for it. Don’t blame them for that. The “let them eat cake” attitude of the current bunch is easy to see.

  2. I agree with everything you said, DJohn1. Also, investors paying all cash were driving the last few years in the market, especially in Florida, where I live. Now that they are largely pulling out, the market is stuck selling to regular people who have to get a mortgage.

    Many people who would have normally qualified for a mortgage are now unqualified because of bad credit due to a short sale or foreclosure during the 2008 housing crisis. And, like you pointed out, fallen wages will also make it more difficult to get a mortgage.

    I am curious as to if the guvmint is going to step in and lessen the qualifications for a mortgage, in order to prop up the housing sector, as soon as they figure out it is falling. And create the same sub-prime mess that they created before. What do you think?

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