Friday , 9 December 2016


The “dumb money” is finally buying real estate

…Last month the most people in eight years decided that if they werereal-estate-7 going to buy a new home, now would be the time to do it – but how much longer can this trend continue?

A guest post by Harry Dent (EconomyAndMarkets.com) which has been slightly edited ([ ]) and abridged (…) to provide a faster and easier read.

Even with last month’s boost, new home sales aren’t anywhere close to where they were at the housing peak in 2005 when a million or more new homes were selling every month. We’re not even close to where we were before the bubble started in 2000! Just look at the reality of it in this chart, which adjusts new home sales for rising population growth:

The baby boomers carried us to new highs in the middle of last decade. After that, real estate suffered the most drastic fall in U.S. history. The rise in new home sales since 2012 is nothing compared to that! This one-month, 16.6% rise hardly even shows up! It is clearly a dead cat bounce!

A “dead cat bounce” is trader terminology for a very modest bounce that follows a substantial crash… meaning there’s more to come. Do the bounces following major crashes in the early 1980s and early 1990s forward look like this one? Not hardly!

I warned of the bubble peak in housing prices in late 2005 before the bubble burst in early 2006 and I’m warning now that the millennial generation will not carry the housing market to new highs the way the boomers did.Their demand will simply not be enough to offset the retiring baby boomers who eventually die and become sellers by default. That’s why I’m predicting net housing demand will fall – even turning negative over the next two decades – especially starting later this year – and won’t turn positive again until after the year 2039 – 23 years from now

Conclusion

What we’re seeing today is simply the “dumb money,” particularly the everyday household from the millennials, finally buying after holding back for years, now that they feel the risk of another housing downturn is waning. Meanwhile, the “smart money” is retreating from the highest-end real estate in bubble cities like London, Manhattan and Miami – with more of them to follow.

The smart money is selling, like the richest family in China, and the everyday household is finally buying. What does that tell you?

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