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See a True Picture of the So-Called Real Estate Recovery
Home values rise: Whiplash and then backlash?

By Bob Stokes
Wed, 31 Jul 2013 18:15:00 ET
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Homeowners don't know whether to laugh or cry. The value of their homes sank as much as 50% during the mortgage crisis, but, then, in the second quarter of 2013 alone, home values have appreciated by nearly 30% in some markets. 

In March 2005, near the peak in the real estate market, The Elliott Wave Financial Forecast warned subscribers about a steep plunge in home values:
 
The transference of focus from stocks to property began four days after the NASDAQ’s March 10, 2000, peak, when the S&P 500 Homebuilding Index bottomed. Since then, the index has soared to more than a 700% gain, which resembles the NASDAQ’s October 1998-March 2000 ascent. ... The five-wave pattern from 1990 says that the January drop in home sales is the beginning of a much steeper long-term decline.
 
The Elliott Wave Financial Forecast, March 2005
 
Remember, this real estate analysis was published before the big slide in home values.
 
Today, the talk is about a real estate recovery. In some markets, home values have recently soared:
 
As the weather warmed up this spring, so did the national housing market, shaking off a relatively sluggish start to the year to register the highest annual rate of home value appreciation in any second quarter since 2004. .... Metros with the largest annual gains in the second quarter included Sacramento (29.5 percent), Las Vegas (29.4 percent) and San Francisco (25.5 percent).
 
Zillow, July 22
 
The recent surge in home values has many observers declaring lift-off from a bottom. But let's put the recovery in context. Take a look at this chart from the recently published double issue of the July-August Elliott Wave Theorist.
 
 
 
Home values have risen since this chart was published in March 2013, but they are still substantially below the peak. The July 30, 2013, S&P/Case-Shiller 20-City Composite Home Price Index level stood at 156, and reflects May home prices. 
 
As Robert Prechter said in the latest Theorist, "[F]or decades real estate buyers employed more leverage than anyone. The debt they incurred is still a ball and chain around this market’s neck."
 
Returning to the Zillow article:
 
‘Homeowners are feeling a sense of whiplash after years of depreciation, but this kind of market behavior won’t last,' said Zillow['s] Senior Economist ... . ‘Investors are starting to pull out of some markets and regular buyers are coming back, and more inventory is slowly but surely coming on line, both of which will contribute to slowdowns in appreciation.’
 
The bigger economic trend suggests that today's whiplash in home values will turn into an out-and-out backlash.
 

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