Real Estate's Crash Landing
The glut of homes on the market, the highest level since 1993, doesn't even begin to tell the story. Homes were far more affordable back in 1993 than they are today, and there were significantly more renters (who had not yet entered the market) who could potentially buy them. Today, home affordability is at an all time low, and just about anybody who could buy one already has. For those who think the inventory of unsold homes is high now, you ain't seen nothing yet.
Consider these factors. There are a record number of new homes currently under construction. Real estate speculators who bought solely on the anticipation of rising prices will likely try to unload their properties now that the market has turned. With higher short-term interest rates, those who financed with ARMs will also try to sell their homes to get out from under mortgage payments they can no longer afford to make. A record number of Americans who bought second homes, or vacation properties, will likely reassess the wisdom of those purchases, and put these properties back on the market as well. Finally, homeowners who watched the values of their homes rise for years, but were reluctant to sell them for fear of missing out on even bigger gains, will rush to cash in before all that paper profit disappears.
This raises two pertinent questions. First, where will all the buyers come from to absorb this supply and second, at what terms will lenders be willing to finance these purchases? When prices were rising everyone wanted to buy, no one wanted to sell, and lenders were willing to finance just about any transaction. As a result, there was a "shortage" of homes for sale, a surplus of buyers, and prices rose accordingly. As prices begin to decline, few will want to buy, many will want to sell, and gun-shy lenders will be reluctant to finance all but the most secure transaction. As a result, the "shortage" will become a glut, and prices will collapse.
The glut of homes on the market indicates just how overpriced real estate has become. By next year just about every house in America would be for sale if the owners thought they could sell at today's prices. It is impossible to clear the market at current price levels. The only solution is for prices to plunge. Lower prices will result in fewer homeowners wanting to sell, more potential homebuyers able to buy, and lenders willing to finance the purchases.
Don't wait for real estate's crash to take the U.S. economy, and your portfolio down with it. Protect your wealth and preserve your purchasing power before it's too late. Discover the best way to buy gold at www.goldyoucanfold.com, download my free research report on the powerful case for investing in foreign equities available at www.researchreportone.com, and subscribe to my free, on-line investment newsletter at http://www.europac.net/newsletter/newsletter.asp
For those of you who feel my forecast sounds a bit extreme re-read the following real estate commentaries posted on my web site (dating back to August 2003). Most were written at a time when the bubble was still inflating and just about everyone denied it even existed. Since everything I predicted is now coming to pass, there is very little reason doubt me now.
The Paradox of Housing
June 23, 2006
Not Your Father's Housing Market
April 21, 2006
Too Big to Burst
February 24, 2006 http://www.europac.net/archives.asp?year=2006&qtr=1
With Real Estate, This Time it Really is Different
November 18, 2005
Housing Speculation is More Rampant than You Think.
July 5, 2005
Still Not Convinced There's a Real Estate Bubble, Read This!
April 20, 2005 http://www.europac.net/archives.asp?year=2005&qtr=2
Housing Bulls Inadvertently Support the Bearish Case
December 13, 2004
The New Way to Rent a House
October 14, 2004 http://www.europac.net/archives.asp?year=2004&qtr=4
N.Y. Fed sees no evidence of a housing bubble. Are they blind?
Wednesday, June 23, 2004
Job Growth Built on Highly Mortgaged House of Cards
Friday, June 4, 2004
In Arm's Way: The Tender Trap of Adjustable Rate Mortgages.
Friday, May 7, 2004
Higher mortgage rates equal lower home prices
Thursday, August 14, 2003
Mr. Schiff is one of
the few non-biased investment advisors (not committed solely to
the short side of the market) to have correctly called the current
bear market before it began and to have positioned his clients
accordingly. As a result of his accurate forecasts on the U.S.
stock market, commodities, gold and the dollar, he is becoming
increasingly more renowned. He has been quoted in many of the
nation's leading newspapers, including The Wall Street Journal,
Barron's, Investor's Business Daily, The Financial Times, The
New York Times, The Los Angeles Times, The Washington Post, The
Chicago Tribune, The Dallas Morning News, The Miami Herald, The
San Francisco Chronicle, The Atlanta Journal-Constitution, The
Arizona Republic, The Philadelphia Inquirer, and the Christian
Science Monitor, and has appeared on CNBC, CNNfn., and Bloomberg.
In addition, his views are frequently quoted locally in the Orange