On the morning of Tuesday September 29, the S&P/Case-Shiller Composite Home Price Index reported a 1.6% rise in July, the third monthly increase in a row. Seconds later, the mainstream experts openly declared -- Ding Dong, the Housing Crisis Witch Is Dead.
These up-to-the-minute news items say plenty:
- "Home Prices Rise For Third Straight Month. The rule of thumb is that three observations is a trend." (CNN Money)
- "US Recovery's On Track" (MarketWatch)
- "In the third-quarter, we started to see some real signs that the housing market is in fact starting to stabilize. The worst has passed." (Bloomberg)
Well, that's one way to look at it, albeit a very short-sighted one. Fact is, while home prices have been rising since April, the year-over-year records are still plunging: in annual terms, the Case-Shiller Index actually fell 13.3% in July.
Not to mention the fact that the recent uptick in "monthly" prices is an incentive-based rebound, not an intrinsic one. To wit: A swelling number of foreclosed homes have pushed real estate prices down to deep discounts. Plus there's the $8000 government tax credit for first-time home buyers, which expires after November.
Bottom Line: The housing market is on life support. There is no indication that the sector could breath on its own without the machine of easy credit.
Of course, this isn't the first "Housing Comeback Fantasy" invented by the financial mainstream. Each year since the sector imploded in 2005, the usual suspects have announced the end of the wreckage. In October 2006, then Federal Reserve chairman Alan Greenspan stated,
"It may not be too soon to say that the worst is over."
Equally memorable is this statement from the July 2007 London Conference:
"The subprime implosion is a contained, isolated and temporary event with little risk of wider fallout.”
The price of this blind optimism is incalculable. Contrary to popular belief, however, it was foreseeable. In fact, the historic fallout in housing is the fulfillment of the long-term outlook presented in Bob Prechter’s 2002 book “Conquer the Crash."
Here, the following CTC excerpt fully reflects Bob's awareness of the coming crisis:
“What screams ‘bubble,’ giant historic bubble, in real estate is the system-wide extension of massive amounts of credit to finance property purchases… When prices begin to fall, lenders will experience a rising number of defaults on the mortgages they hold.”
Once the boom tide of housing had turned, the March 2005 Elliott Wave Financial Forecast went against the bullish crowd with a compelling lead story titled “Real Estate Bust Begins.” Our analysts issued these mind-boggling warnings:
· There is "potential for a serious unraveling of the housing market."
· The S&P Homebuilding index will suffer a dotcom-like fall.
· And, "as the most aggressive dispensers of credit to the housing industry, subprime firms are on the front edge of the housing bubble."
Shortly after, the July 2005 Elliott Wave Financial Forecast removed all doubt and wrote:
"The extreme psychology has taken up residence in real estate. Now is the most dangerous time to be on board the home bandwagon. There’s no mistaking who the Enrons of the bust phase will be. They will be the firms now peddling adjustable-rate, no interest/nothing down and assorted other types of subprime mortgages.”