The striking Case-Shiller regional charts shown below, courtesy of MHanson.com, make Mark Hanson angry: "so, 2006/2007 was the largest house price bubble ever, but there is nothing to see here in 2017?" and sarcastically points out that "if this isn't a house price bubble, I would hate to see one."
# His bottom line:
If 2006/07 was the peak of the largest housing bubble in history with affordability never better vis a’ vis exotic loans; easy availability of credit; unemployment in the 4%’s; the total workforce at record highs; and growing wages, then what do you call “now” with house prices at or above 2006 levels; worse affordability; tighter credit; higher unemployment; a weakening total workforce; and shrinking wages? Whatever you call it, it’s a greater thing than the Bubble 1.0 peak.
Below are some further observations and "red-flags" from Hanson on Peak Housing, after the latest new home sales data:
- Sharp downward sales revisions for past 3-months.
- Huge downward price revisions for past 3-months, lower by 10%, 5% and 3%, respectively, exactly as I predicted on last month's release.
- Builders maxed out on pricing power; Med & avg prices flat for 2-years.
- The all-important Southern Region was flat YY; the South makes up over half of all sales in the nation, and drives builder demand and profits.
- 100% of the June YY sales gain came from the Western Region, which doesn't jibe with the weak price performance and will likely be revised lower next month.
- Income required to buy the avg priced builder house is at historical highs and has completely diverged from the multi-decade trend line.
- Historically low growth & rebound relative to resales suggest "lack of supply" meme in the Existing Sales market is over-stated.
# As he says, "Peak builder is here."
Finally some other quantitative and qualitative observations from the housing guru:
1) New Home Sales "up to" 1995 levels after $15 TRILLION in debt and Fed liquidity aimed largely at the sector.
2) Builder pricing power largely flat for 2-years...
3) Income required to buy the average priced builder house has completely diverged from the multi-decade trend line. This obviously explains why sales are only at 600k SAAR now vs 1.2 million in Bubble 1.0. Reversion to this mean will occur, either thru a sharp rise in income; new exotic loan programs, which make payment less; or house prices dropping...
4) Last time builders were this euphoric was the peak of the biggest credit bubble in history...
5) It's too bad the public isn't as euphoric about buying as the builders think they are...