NEW LOW OBSERVER

On December 9, 2010, in an article titled “Real Estate: The Verdict Is In”, we said the following:

“Based on the indicated sources above, we feel that real estate has a six to nine year stretch of rising prices or ‘trading’ in a range and decreased foreclosures.”

Real Estate Prices since December 2010:

Foreclosures since December 2010: 

As part of the commentary in 2010, the expectation of the 6-9 years of increasing prices is currently showing signs of fatigue as indicated in the year-over-year change of the S&P/Schiller National Home Price Index:

Nine years in and there is the increasing chance that the declining year-over-year rate of change since 2013 may be coming to an end.  Although we’d like to see the rate of increase get closer to zero we think that, more or less, the trend could moderate before exceeding the previous year-over-year highs of 2018.

Going back to that December 2010 article, we presented a chart of the Real Estate Loans, All Commercial Banks (REALLN) on a year-over-year basis.  Although December 2010 wasn’t the absolute low in the indicator, it wasn’t long before that level became a distant memory.

The points in the chart above, circled in red, are levels showing moderation in the rising trend.  Our belief is that these provide the respite that is needed and expected in a well functioning housing market.  The current moderation after the decline from the 2013 peak suggests that we’re at or near the end of the 9 year half cycle in the 18-year rising trend of real estate.

What did we just say?

We think another round of rising real estate prices is near.  While the indicator can fall further, we think that the current level has been consistent with the 18-year cycle as pointed out by Roy Wenzlick.  For this reason, we think that the next trend in real estate price will eclipse what has already been seen with year-over-year increases reaching double digit levels.  Ideally, this level of increase in real estate will occur after a 1991-like recession.