Why a Peak in Home Prices May Be Approaching
“Is it a good time to sell a house?”
by Bob Stokes
Updated: October 05, 2021
Some people buy a house solely as an investment.
Others want a better place to live -- perhaps more room for a growing family. The investment part is secondary. However, even people in this category would likely hold off on a purchase if they had an indication that lower home prices were just around the corner.
Well, there is such an "indication."
First, a little historical context: In 2005, near the peak of the prior housing bubble, a University of Michigan survey asked participants, "Is it a good time to sell a house?"
In August, September and October of that year, a then-record high percentage of participants said "yes." Eight months later, in June 2006, U.S. home prices topped.
With that in mind, our September Elliott Wave Financial Forecast explains what that same survey recently revealed:
[A] series of questions in the University of Michigan monthly sentiment survey tracks attitudes toward home prices... This chart shows affirmative responses to the question "Is it a good time to sell a house?"... The latest reading of 48 is twice the peak reading at the end of the last housing boom. [This is] a more-than doubling from March to June of this year. [emphasis added]
This sentiment survey may not be a precise timing indicator. Recall the eight-month timespan between the 2005 survey findings and the 2006 peak in home prices. Yet, it is still a "heads up."
Also keep in mind this astounding headline (Marketwatch, Sept. 30):
Home prices have risen 100 times faster than usual during the COVID-19 pandemic [emphasis added]
So, in at least one way, the current housing mania is even more stark than the last one.
Of course, home prices might climb even higher... or not. Is there a way to go beyond guessing, though?
Yes. The stock market and housing prices tend to be correlated. If you know what's likely next for stocks, big-picture, then you also know what's likely next for real estate.
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This is from our September Elliott Wave Theorist:
August 2021 beat out March 2000 for all-time overvaluation based on the ratio of S&P industrial stock prices to corporate book values, and the S&P 500 still yields under 2% annually in dividends.
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