The Phaserl


The “Dumb Money” Is Finally Buying New Homes, Just as the “Smart Money” Exits

by Harry Dent, Wolf Street:

But how much longer can this trend continue?

New home sales just went up a staggering 16.6% in April: 619,000 new homes were sold – the most since early 2008 just before the worst of the housing meltdown, and the highest rate of growth in 24 years. So is this a sign that the economy is back on track?

Don’t count on it.

Home sales, like jobs, is a lagging indicator, not a leading one. It’s a sign of where we’ve been, not where we’re going. So this isn’t a big surprise to us. In fact, this is just like stock indicators near a peak.

The dumb money is finally pouring in while the smart money is exiting. Except this time, it’s just in real estate.

Millennials have held back on buying homes for a variety of economic reasons since 2008. Tighter lending standards, for one; the concern that home prices could fall again, for another; then there are $1.2 trillion in student debt, falling real wages, and higher unemployment for millennials (since more baby boomers are staying in the workforce longer).

So even while more millennials cross that 28 to 33 age time frame when they’d normally buy a house… more and more of them have been opting out, choosing to stay at home with their parents, or rent. They’ve put off the biggest financial decision of their lives because they all know the worst could happen.

But, home prices have continued rising, and the inventory of existing homes for sale has been falling. Hence, new home sales keep advancing. So last month, the most people in eight years decided that if they’re going to buy a new home, now’s the time to do it.

But how much longer can this trend continue?

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 in the chart!

A “dead cat bounce” is trader terminology for a 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! The millennial generation will not carry the housing market to new highs the way the boomers did.

It’s not just the skittishness of these fragile new buyers. Their demand will simply not be enough to offset the retiring baby boomers who eventually die and become sellers by default.

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