Housing Bubble Reblown: Last Chance for a Good Price Was 7 Years Ago

Every month I am amused by the comments from NAR chief economist Lawrence Yun regarding housing fundamentals, especially job growth.

Forget about strong jobs. Toss Yun's views in the ashcan.

Compared to wage growth, homes are nearly as unaffordable now as they were at the peak of the housing bubble.

That's without factoring in student debt and attitude changes regarding debt, assets, and mobility.

January 1987 to January 2000

In the 13-year period between 1987 and 2000, home prices, rent and wages all rose together. Homes were home, not speculative playthings, not a retirement vehicle.

That changed in 2000.

January 2000 to July 2006​

In the 6.5 year period between January 2000 and July 2006, home prices soared 85% vs 22% for both rent and hourly earnings.

People thought homes would never stop rising. Supposedly there was a massive shortage of homes. People line up for block for the right to buy a Florida condo. In a few short weeks, after the pool of greater fools ran out, the housing crash began.

The housing crash lasted longer than the stock market bust and finally ended in late 2011. January 2012 was the last time rent, home prices, and wages were roughly in sync.

January 2012 to April 2019

Home prices are not quite as bad as they were in July of 2006, but pressure on would-be buyers is extreme.

Wages are up 19%, rent is up 23%, and housing prices are up 55%. Those are national averages. Some markets are better and some much worse.

Millennials are under sever pressure because the price of rent has outstripped wage growth. Waiting to buy has generally made matters worse.

Those who could not afford to buy a home in 2013 are much further behind today.

Worst Time to Buy Since 2012

Now is the worst time to buy since 2012. Markets vary of course, and so do strategies. Those who own a house, especially a big one in a hot area have a good chance to downsize.

But the new kid on the wanna-be block would be wise to think twice.

Deflationary Bust Coming

I am convinced another deflationary asset bubble burst is at hand.

The bust could easily last six to eight years this time, not two. Indeed, that is my expectation.

The bubble represents asset inflation. Asset deflation will likely be accompanied with a small amount of price deflation as well.

No Crash?!

Unlike others, I am not calling for a crash. The liquidity conditions are way different. And the primary bubble this time is not housing, but junk bonds and equities coupled with very deflationary demographics.

I expect something more along the lines of -15%, +3%, -10%, +5%, -8%, -8%, +5%, -18%. The result of that is about -46% with nothing worse than -15 to -20% or so.

When I called for a deflationary bust in 2005 I was widely thought of as a fool. I was, for two years.

Maybe I am again, for even longer.