Bad news about the housing market these days is almost too common to be called "news."
The sad irony is, a single family home is the one asset we were told "always goes up"...
...Yet housing is the one major sector that's remained worse off than virtually any other.
Here's the latest round of government data: U.S. home prices fell by 5.5 percent in Q1 vs. a year ago, and lost 2.5 percent vs. the previous quarter; monthly housing starts fell 10.6 percent in April alone.
Housing starts reports do more than provide information about home construction. They also serve as an indicator about the health of the economy (see chart below):
The economy is slowing. Growth now stands at 1.8 percent, vs. 2.6 percent last summer.
There was another time in our history when the economy slowed and went into a severe contraction. With that period in mind, EWI's Robert Prechter explains his forecast for housing:
"I am sometimes asked why I have such a 'crazy' outlook for real estate, calling for prices to fall as much as 90 percent. I will let a subscriber answer that question. He recently sent this email:
'For what it’s worth, I will recount what my father told me when real estate values were falling in the sun belt in the late 1980s. He was born in 1919 and never stopped talking about the Depression as it made such an impression on him. I asked him one day how far the price of farmland fell in the 1930s. He answered, 'Your Grandfather and I went to the auctions held on the county courthouse steps...and watched auctions for the best farms in this county that had been repossessed, and there were no bidders. You couldn’t borrow a dime to finance a purchase, and if you had money you wouldn’t part with it under any circumstances.'"
Does the trend in today's real estate market portend what's ahead in the general economy?
We can say this: many of the same deteriorating economic indicators that we saw in mid-2007 are flashing the same signals now.
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