"Act II" in the Housing Collapse Drama? | Elliott Wave International

Home > Real Estate
"Act II" in the Housing Collapse Drama?
Which Assets Will Follow Real Estate into a Potential Abyss

By Bob Stokes
Wed, 01 Dec 2010 16:15:00 ET

Get investable insights sent to your inbox at least once a week – for free. Challenge the way you think about investing with The EWI Independent.

Privacy

My family and I were lucky.

We put our house on the market about a year and a half ago, and the first family who came out to see it decided to buy. Our home was on the market for less than a week and sold at 97 percent of my asking price.

I thought I was a little late to sell -- that the time had passed to get the maximum return. But the family from India loved the place, and by the way, mainly paid cash. The man I had bought the house from had moved into a very upscale neighborhood just down the road. My former neighbor told me this guy also had investments in other houses. I view that as a microcosm of the mind-set toward the residential real estate market at the peak.

And now this from Reuters (11/30):

"Prices of single-family homes in September fell more than twice as fast as expected from the prior month...

"'Housing is in big trouble. Excess inventories remain a big problem,' said Gary Shilling, President of A. Gary Shilling & Co...

"Shilling expects another 20 percent drop in home prices.

"'As prices go down, more people get underwater, leading people to walk away,' leading to more write-downs by the banks, Shilling said. 'That will be Act II in the whole drama of the housing collapse.'"

Subscribers to The Elliott Wave Financial Forecast received plenty of advance warning about the trend in residential real estate prices. This is from the September 2005 issue:

"There are many reasons to believe that a bear market in real estate has, in fact, just begun, including the latest reading on that chart of bank mortgage holdings. At 61%, bank mortgage holdings touched a Fibonacci point of likely reversal. Another factor is the action in the EWI Sub-Prime Lenders Index, which the March issue of EWFF identified as the 'front edge' of the great financial bubble. After completing five waves up at three degrees of trend in January, the index declined in five waves, sputtered higher in a countertrend bounce and reversed in what should be a powerful decline to much lower levels. The homebuilders have also joined in with a five-wave decline of their own. The decline’s break of the exponential curve formed by its near vertical rise is a powerful sign that a long, hard fall is starting."

In places like New York City and San Francisco, stalled and declining housing prices have the affluent taking a "wait and see" approach:

"In Manhattan the demand for high-end rentals has never been hotter. In the third quarter of 2010 there were 200 new leases signed for rentals charging $10,000 a month and up, more than double the 89 leases signed the year before... the increased demand for luxury rentals shows that more would-be buyers are concerned and taking the 'wait and see approach.'

"The demand is also being seen in Marin County, right across the Golden Gate Bridge from San Francisco."

CNBC, Nov. 26

EWI's Robert Prechter wrote about the psychology which attends falling real estate prices in Conquer the Crash, 2nd edition, p. 152:

"'Well, gee, property prices have been coming down. Why should I rush? I'll wait till they come down further." The further they come down, the more the buyer wants to wait. It's a downward spiral."

Houses are just one of many assets that skyrocketed during The Great Asset Mania. Our analysis suggests that the "downward spiral" has much further to fall.

EWI's Robert Prechter recently published his November Elliott Wave Theorist. In that issue you'll discover the difference between what followed the 2007 stock market top, vs. what is now unfolding after the April 2010 stock market top. This analysis alone is worth taking advantage of your risk-free read of the Theorist.

But there's much more in this issue of the Elliott Wave Theorist, including a mention of which ratio is "at its most extreme level since April 1930 if not ever." You'll also discover what "will probably prove to be one of the most expensive 'buy signals' of all time." Now is the time to click here for your risk-free read of the Elliott Wave Theorist.

Tags: foreclosures, housing prices, Robert Prechter

Stay Ahead of the Trend in U.S. Stocks

EWI's Financial Forecast Service equips you to think, trade and invest independently from the crowd. Here's what you'll get, risk-free:

Short Term Update -- Intensive forecasts and analysis3x/week for U.S. stocks, gold, silver, bonds and the U.S. dollar.
Financial Forecast -- In-depth,intermediate-term perspective on U.S. stocks, gold, silver, bonds and the U.S. dollar.
Theorist -- Bob Prechter's monthly big-picture insights.

Put the Financial Forecast Service on your screen in minutes, risk-free>>

Most Read

Highest Rated

Free 50-Page eBook

Learn to Think Independently

The Independent Investor eBook can help you to challenge conventional notions about investing and explain market behaviors that most people consider "inexplicable."
Download your free Independent Investor eBook

Real Estate

CLOSE [ X ]

The Elliott Wave Principle is a detailed description of how financial markets behave. The description reveals that mass psychology swings from pessimism to optimism and back in a natural sequence, creating specific Elliott wave patterns in price movements. Each pattern has implications regarding the position of the market within its overall progression, past, present and future. The purpose of Elliott Wave International’s market-oriented publications is to outline the progress of markets in terms of the Wave Principle and to educate interested parties in the successful application of the Wave Principle. While a course of conduct regarding investments can be formulated from such application of the Wave Principle, at no time will Elliott Wave International make specific recommendations for any specific person, and at no time may a reader, caller or viewer be justified in inferring that any such advice is intended. Investing carries risk of losses, and trading futures or options is especially risky because these instruments are highly leveraged, and traders can lose more than their initial margin funds. Information provided by Elliott Wave International is expressed in good faith, but it is not guaranteed. The market service that never makes mistakes does not exist. Long-term success trading or investing in the markets demands recognition of the fact that error and uncertainty are part of any effort to assess future probabilities. Please ask your broker or your advisor to explain all risks to you before making any trading and investing decisions.