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Economy , US Markets

How Homebuilding Stocks Signal Big-Time Trouble

"The biggest property booms tend to turn on a dime"

by Bob Stokes
Updated: April 04, 2019

Most people who grew up in the mid-20th century thought of their house as a home, not part of a "market."

Yet for the past generation or two, buyers see a house purchase as an investment... and a place to live. In turn, prices reflect the same psychology as other financial market assets. This includes significant price fluctuations.

This was increasingly evident in the 1990s, and emphatically so by 2004-2005.

Even so, here's a May 4, 2005 CNN Money headline:

"Real estate: busts don't follow booms"

In other words, even though the article reported that "the number of U.S. metropolitan areas experiencing booms in real estate prices spiked 72 percent in 2004," homeowners shouldn't worry about a coming bust.

Yet, we know that the U.S. housing market did indeed peak a year later and go into a tailspin as the Great Recession deepened. Housing prices did not bottom until early 2012.

By January 2017, the U.S. National Home Price Index exceeded the 2006 high, according to the Federal Reserve.

Are we in another real estate bubble? Well, there's no doubt that the market has seen a "boom," which brings to mind this quote from the October 2018 Elliott Wave Theorist:

"The biggest property booms tend to turn on a dime."

Plus, the November 2018 Elliott Wave Financial Forecast showed this chart of the S&P Supercomposite Homebuilding Index and said:


A burgeoning deflation is unmistakable in the real estate market.... Readers may remember that it was a 2005 turn in homebuilding stocks that helped the Elliott Wave Financial Forecast anticipate the larger bear market.

EWI's analysts are not surprised by the latest real estate news.

This is from the Wall Street Journal (April 1):

50 Cent Sells Massive Connecticut Compound for 84% Less

After 12 years of trying, the rapper finally unloads the 52-room Farmington property, which includes a night club, for $2.9 million.

And, on April 2, CNBC had this headline:

Manhattan real estate sales fall for sixth straight quarter -- longest losing streak in 30 years

Now it's time to find out what our Elliott wave experts anticipate next for real estate and stocks -- and also for gold, silver, the U.S. dollar and the economy.

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