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Why Financial Trouble Brews on the “Home” Front

It’s noteworthy that U.S. home sales only retraced 45% of the 2005-2010 decline

by Bob Stokes
Updated: May 05, 2020

The world has been hearing a lot about "homes" in recent months, as in -- "stay there" to help halt the spread of COVID-19.

At the same time, the sales of those homes in the U.S. have seen a significant slowdown.

No doubt about it, the coronavirus has played a big role. Yet, a notable divergence was taking shape in the housing market long before the current pandemic.

Financial history shows that it' happened before.

Around the time of the prior housing bubble peak, our January 2006 Elliott Wave Financial Forecast noted:

Home sales are falling across the board now, but "virtually no investors expect sudden burst of housing bubble," says the headline of a UBS/Gallup Poll of investor attitudes: "Just 1% of all investors expect housing prices next year to exhibit a rapid decline." This sentiment is bearish for real estate prices.

Indeed, U.S. housing prices topped later in 2006. Lower home prices followed slowing sales.

Fast forward to this chart and commentary from our just-published May 2020 Elliott Wave Financial Forecast:

HomeSalesPrices

The top graph on the chart shows the median price paid for houses sold in the U.S. ... In addition to the terminal five-wave form of the rise, a key to the forecast is seen on the bottom graph. It shows the dramatic divergence in home sales, which retraced just 45% of the 2005-2010 decline.

Individual homeowners would not be the only group hurt if real estate prices fell. Also be aware of this notable factoid and comment from the August 2019 Elliott Wave Theorist:

Since 2012, private equity firms have been buying an average of 10% of the annual inventory of properties for sale in the U.S. They now own huge portfolios of homes worth hundreds of billions of dollars.

You've just seen the Elliott wave count of U.S. median home sale prices.

Now is the time to see the Elliott wave structure of the main stock market indexes.

You see, in addition to all else that' been stated, the stock market and real estate prices are approximately correlated. So whatever trend Elliott waves suggest next for stocks will likely be reflected in real estate, too. After all, both markets are driven by the same social mood.

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Is Another Deflationary Depression Really Possible?

The word “another” in the title refers to the two prior U.S. deflationary depressions.

The first extended from 1835 to 1843. The second and more famous one lasted from 1929 to 1933.

The 2020 edition of Robert Prechter’s Conquer the Crash mentions the latter:

Depressions are not just an academic matter. In the Great Depression of 1929-1933, many people lost their investments, their homes, their retirement plans, their bank balances, their businesses — in short, their fortunes. Revered financial professionals lost their reputations, and some businessmen and speculators even took their own lives. The next depression will have the same effects. To avoid any such experience, you need to be able to foresee depression. Let’s see if such a thing is possible.

As you might imagine, the book delves deeply into the prospects of a deflationary depression.

You are encouraged to read the book in its entirety.

Also know that the just-published May Elliott Wave Financial Forecast states:

Deflationary pressures abound.

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