It's now GAME OVER for the home builders.

First a quick recap on some recent posts.  Buyers set prices, not sellers.  This is true of interest rates, home prices, auto prices and all other market trades.  Government knows this and does not like it and so it does things like trying to shove larger minimum health coverage insurance down our throats via unconstitutional actions like Obamacare.  But such things are never more than short term perturbations of the market because the idea that prices/overall consumption can be raised arbitrarily assumes that every consumer is a bottomless pit of buying power and of course, nothing could be further than the truth.  People only have so much money to spend and government rules don't change that one bit.

Additionally, interest rates have been going up since mid 2012 and recently they broke some important resistance levels "with gusto".

Since real estate buyers buy homes based on what the kitchen and bathroom look like (women!) as well as what they can afford per month (as opposed to doing any kind of subjective analysis on the true worth of the real estate), rising interest rates are going to whack the housing market but good by significantly raising the monthly payment.  If you just bought a home and you got into it with low rates then don't expect any big congratulations from me because I'm afraid to tell you that you likely overpaid badly.  Land, building materials and labor are all pumped up in price by how much available credit there is.  Low rates mean that there is lots of credit available relative to people taking on debt (supply and demand is alive and well in the credit markets folks).  So your "genuine deal" of a home that you paid $500k for and which looks like a great deal compared to neighborhood prices is going to turn out to be an overpayment of about double once interest rates skyrocket to 7-10% or higher.  Again, prices are not worth what you think they are or what the county assesses taxes on or what you paid or even your cost of materials and labor.  They are worth only as much as the perspective buyer can afford to pay per month on the loan he will need in order to "buy" the place.

And so I finally get to the point of this post which is that home builder stocks are about to get crushed again right along with banks and bond prices and everything else in the stock market.  Below is the wave chart of the home builders index ETF, ticker: XHB.  It collapsed with 5 clear waves down into early 2009 and then bounced in a very clear a-b-c wave pattern to around the 61.8% fib since then.  The bounce has now peaked by my reckoning and the roll over is in progress.  2015 is going to be a bad, bad year for home sales.  As Greenspan reminded us on many occasions, as home prices go, so goes the US economy.  Why?  Because real estate is the single largest asset on the books of banks.  So when the home prices collapse so will the balance sheets of the too-big-to-fail-but-will-fail-anyhow-banks.  2015 is going to be horrible for the banks and other financials. 

If you are in the market for a home JUST WAIT!!

If you are in the market to sell your home, GET ON WITH IT.

Over the past few years, many homes have been snapped up by investors hoping that their money will work for them so they can sit back on easy street and enjoy the view.  These so called "cash buyers" are not really all cash buyers.  Many simply have pre-approved credit (AKA leverage) which spends like cash and they bought a lot of homes at what they thought were generationally low prices not to live in but rather to invest in.  These are weak hands!  They thought they were the smartest guys in the room but in fact future history will show that they caught the falling knife.  When prices begin to falter they will not be happy collecting rents because they will be freaking out that their capital is vanishing.  They will panic sell just like anyone else and they will be selling into a thinly traded market of rising interest rates where buyers will be sitting back letting the coming deflation bring home prices back down to reality.


Where this is going to hurt the most are the liberal states where home prices have been bid up to the moon.  The left and right coasts are going to get creamed.  If you thought the last housing crash was bad, wait until interest rates are 6,7,10% again.  If you own rental property, now is a smart time to sell before everyone else hits the market.  If you can get your capital back out right now then you will clean up on the other side when the greater depression floods the market with nice houses in BK sales from banks which themselves have gone BK.  The de-leveraging should be massive and anyone who holds cash should be king.  All kinds of assets should come to market at cheap prices.   

Bernanke did not avoid the coming deflationary depression. 

All he did was kick the can down the road and to make sure it turns out far worse than it ever could have done without his and Greenspan's fucking criminal meddling.