The 3-Stage Housing Bubble Collapse
The comments below are an edited and abridged synopsis of an article by SRSRocco
The housing market is heading for another epic bubble. However, the bubble forming today is different than the meltdown in 2007. Then, there was an oversupply of homes; today there is a shortage. With more buyers than sellers bidding up prices, the US median home price value hit a new record high at the end of 2017, and wages have not kept up.
Housing values in the US are at around 1.5 times GDP (close to 3 times the GDP of China). Real estate prices across the country in virtually every large metro area are near peak values. Rates for flipping are at decade highs. Ex-pats are taking their money abroad and retiring in more affordable countries, while money from China is flowing the other way and boosting prices in some areas dramatically.
The oil that drives the US and the global economy is in serious trouble. The US is living on borrowed time, as its shale oil industry continues to add more debt to produce uneconomic oil.
And the world is burning a lot more oil than it is discovering. In 2016, 2.4 billion barrels of oil were discovered worldwide, but we consumed more than 10 times that amount (25 billion barrels).
The US shale oil industry has burned through a quarter-trillion dollars more than it has brought in over the last decade. It has been a money-losing endeavor of epic proportions.
For these reasons, the author sees a 3-stage collapse of the US housing market. The first stage will occur when the broader markets experience a 25-50% sell off, and the US median home price will fall 40%. As US oil production continues to decline, we will enter the second stage as the US median home price drops 60%.
The third stage will occur by 2030 (or sooner), as domestic oil production falls to 50-75%. As oil production continues to decline, the value of stocks, bonds and real estate will continue to fall.
The timing could be off, but not by decades. Either way, the notion that real estate values will always rise in the future will be dead for good as the market is negatively affected by falling oil production.
