Here’s The Double Whammy That Will Crash The Housing Industry

Yesterday we looked at a few of the signs of impending doom in the US housing market. Today, we’ll dig a little deeper into the data for a few, more revealing, morsels that reveal a double whammy that will crush the housing industry and homebuilding stocks.

I’ll also follow up on a recommendation I made back in October to take advantage of this setup. Is it still a short? Can we get in now? Get out, or hold?

Let’s take a look and I’ll give you the answers.


I’ve Seen Bubbles and I’ve Seen Pain

Here’s something that I can almost guarantee to you.

You live in a house or an apartment.

Am I right?

And the likelihood is that you either own or rent that abode, unless you’re living at Mom and Dad’s, or you kids’ house. Which is great. Having the whole extended family under one roof is a time-honored tradition in some cultures. We housed my in-laws for several years and loved it.

But even if you are in an extended family home, I bet that you’re still interested in the real estate market. The single-family home market just might be America’s greatest spectator and participation sport.  

I was in the real estate business for much of my life, and I was an analyst for much of that time. I worked as a commercial real estate appraiser in South Florida for 15 years. Back in the late 80s and early 90s I appraised a bunch of big, failed projects. One of them was a giant high rise condo project in downtown West Palm Beach. It was one of the earliest failed projects of someone we all know. A big bank got stuck with a whole lot of condos that it could only sell for huge discounts to cost.

I know what can happen when bubbles burst. I’ve been there, boots on the ground. I wrote a bit about my history in the biz here. Oh, I’ve seen bubbles and I’ve seen pain.   

With the latest release of the NAR’s monthly “existing” home sales data showing some serious weakening, I thought this would be a good time for an update.

I sounded the alarm for you back in early October when I wrote:

The housing market is rolling over.

And it will get worse as mortgage rates and house price inflation continue to rise.

Contrary to popular belief, initially this will make little difference to a booming US economy because housing stopped being a major economic driver after the last bubble collapsed.

But ultimately it will matter, big time.

When prices decline, the financial system will again be in crisis.

Millions of mortgages will be under water again. Homeowners will either walk away from their mortgages, or be foreclosed. The losses will ripple throughout the financial system and markets, just as they did 10 years ago. And taxpayers will be forced, yet again, to pay for the bailouts of Fannie and Freddie, because this time, we own them.

Ultimately, another housing collapse would trigger the Fed to reverse policy, but that’s still many months away. The Fed will continue to tighten the screws until well after the new crisis becomes apparent. Powell affirmed as much at his press conference when he said that the Fed won’t lower interest rates until there’s a sustained financial decline. And we should well remember just how long it took Bernanke to even acknowledge there was a problem.

So how long do we have? That’s hard to say. But here’s a little clue:

Transaction volume seizes up prior to price decline.

Now here’s the housing news you need, and what to do about it