Bears Watching: Housing

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This draft has been sitting in my folder for a couple months now.  And is possibly some bandwagon jumping.  Although at least I have been on the bandwagon a bit (Bears Watching: Observations In Real Estate).  However, the transition to lower prices requires a psychological shift in the market, especially on the part of sellers, and that is going to happen reluctantly (and slowly).

I realize the residential real estate market is large and diverse.  And, most homeowners are not transacting frequently making price moves somewhat less relevant for many.

However, I might be nervous if:

  1. I bought a house in the last 18 months – to the right of the line on the price history chart below.
  2. In an area with a price history chart that looks like this one.

I am not really a practitioner of technical chart analysis.  But that is starting to look a lot like a head and shoulders pattern.

The question is – is how much of runups like the one above are due to inflation vs. speculation / an asset bubble driven by low interest rates.  The inflation component is unlikely to subside.  Or said differently, slowing inflation will not cause prices to retrace their prior ascent.  Only deflation will cause that.

However, the component fueled by historically low rates stemming from monetary and fiscal policies that appear to be in the rear view mirror are at risk of reversing. In fact, they are reversing – you just have to squint a bit and adjust for the rapidly declining transaction volumes.  Also realizing that asking prices on Zillow are not indicative of transaction prices.

But sellers will be slow to acknowledge that their houses have not doubled in price in the last two years and will be until forced to do so.