Stock markets closed higher today, Wednesday September 26, 2007
by Alan Hall
The real estate price decline is accelerating in most of the U.S. Where prices are not declining -- like the Pacific Northwest -- price growth is decelerating. Prior to the peak in 2005, the Elliott Wave Financial Forecast described the mania and the collapse that was likely to follow. That anticipation is clear in this chart of the S&P 500 Homebuilder's Index from the July 25, 2005 Elliott Wave Short Term Update.
Next, we followed with this commentary and chart below in the September 2005 Elliott Wave Financial Forecast:
"The decline’s break of the exponential curve formed by its near vertical rise (shown on the chart) is a powerful sign that a long, hard fall is starting. "
At turning points, we try to keep important facts in front of our subscribers. On August 5, 2005, the Elliott Wave Short Term Update published the chart below.
The August 3, 2007 Elliott Wave Short Term Update brings us nearly into the present with this commentary and this chart below showing magazine covers:
Our view is that any rally that does develop will ultimately prove to be countertrend, taking the form of an “ABC” or some variation thereof. In other words, we do not think that the U.S. housing affliction is over, even if the prices of housing stocks do bounce.
Last week, Robert J. Schiller's September 19 testimony before the Senate Joint Economic Committee described a bust that is just beginning. He said, "I am worried that the collapse of home prices might turn out to be the most severe since the Great Depression."
The U.S. National S&P/Case-Shiller Home Price Index released Tuesday (Sept. 25) showed home prices in 16 of twenty major cities down, with July showing the steepest price drop in 16 years. Sales of existing homes are at the lowest point in five years. The inventory of unsold homes is at an all time high.Housing prices will continue to decline as long as inventories continue to grow – because of unfinished subdivisions, ARM resets, stricter lending standards and rising foreclosure rates. Also, 25 to 33% of all homes purchased during the real estate boom were bought by speculators, and those guys are now long gone.
In some parts of the country, houses have lost thousands of dollars in value – and they're continuing to lose that much every month.
Real estate appraisers have fallen behind the curve. During the housing boom, sellers urged appraisers to raise their valuations of property, but now, buyers and sellers are agreeing to contracts for less than appraised value.
Buyers are driving hard bargains. But those who think they are getting great deals today may end up holding next year's upside-down mortgages. "The U.S. housing market gained 86% in real inflation-corrected value from 1998 to the peak in early 2006." "Since the peak it has lost 6.5% of its value." (Schiller) In other words, much speculative excess has yet to evaporate.
All this is easy to see after the fact, but where were the voices of caution at the peak in 2005? And in 2003, for instance, when a builder/developer still had time to make a profitable exit?
Elliott Wave International's unique combination of technical and socionomic analysis often allows us to anticipate news before it happens. But even here at EWI, it's tough to anticipate what the authors of the Financial Forecast will surprise us with. On Friday, Steve and Pete will issue another set of observations and forecasts that are quite likely to describe future news that are not even on the horizon yet. And at some point in the future, they'll describe a bottom.
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UPDATE: The new October Elliott Wave Financial Forecast is online now.