A while back, the world-wide-webosphere was abuzz with rumors that advanced Google "Earth" software had located the legendary sunken city of Atlantis. Officials at Google later denied the claim, explaining that the digital photographs only appeared to be a network of city streets on the ocean floor.
What brought that story to mind were the latest accounts of the rapidly sinking "island" of the U.S. housing market. According to the most recent quarterly real estate market survey from Zillow.com, the percentage of U.S. homes UNDERWATER -- i.e., those whose market values are below what's owed on them -- soared from 20% in August 2010 to 27% today. On top of that, home prices continue to decline while foreclosure rates rose to a new, all-time record high. (February 10, 2011 Associated Press)
"The US housing market is dying," says Business Insider. "As statistic after statistic continues to roll in, the reality of what is happening is becoming very difficult to deny."
Also increasingly difficult to deny is the fact that so many mainstream observers and officials were as blindsided by the housing collapse as your average homeowner. It's time to "short" the economists, suggested one business blogger recently: "The vast majority of these same 'experts' completely missed the $8 Trillion housing bubble in the United States." (Truthdig)
He's right. In the years leading up to the collapse, you'd be hard-pressed to find a mainstream pundit who didn't think we had entered a new "era" in real estate. Here, the following archive of mainstream insights resets the scene:
- January 2005: "Creative financing” can give “poor-credit buyers… the home of their dreams.” (Associated Press)
- March 2005: “There is a new paradigm in real estate in which prices will continue to rise indefinitely.” (CBS)
- June 2005: Time Magazine cover story titled “Home $weet Home” reaffirms the public's get-rich-quick-attitude towards real estate.
- September 2006: The first drop in home prices in ten years: “This price drop has stopped the bleeding. It seems the sector has now hit bottom.” (DJ MarketWatch)
- October 2006: “It may not be too soon to say that the worst is over.” (Alan Greenspan)
- July 2007: The subprime implosion “is a contained, isolated and temporary event with little risk of wider fallout.” (London Conference with heads of U.S. investment banks)
- October 2009: "The success of the American economy is closely tied to the success of the housing market; by helping to stabilize the housing market, the home buyer tax credit has helped to shore up the economy as it begins to recover." (Bloomberg)
On the other side, Elliott Wave International president Bob Prechter saw the cracks in housing's foundation long before they were visible to the masses. In his 2002 best-selling book “Conquer the Crash,” Bob wrote (see Ch. 16 of the book for details):
“What screams ‘bubble,’ giant historic bubble, in real estate is the system-wide extension of massive amounts of credit to finance property purchases… When prices begin to fall, lenders will experience a rising number of defaults on the mortgages they hold.”
Three years later, the animal spirits surrounding the U.S. housing bull had become stronger than the animal itself. Our analysts saw the potential for a serious breakdown. March 2005 Elliott Wave Financial Forecast issued these unbelievable -- at the time -- warnings:
· There is "potential for a serious unraveling of the housing market."
· The S&P Homebuilding index would suffer a dotcom-like fall.
· And, "as the most aggressive dispensers of credit to the housing industry, subprime firms are on the front edge of the housing bubble."
"There's no mistaking it now. The extreme psychology has taken up residence in real estate. Now is the most dangerous time to be on board the home bandwagon. There’s no mistaking who the Enrons of the bust phase will be. They will be the firms now peddling adjustable-rate, no interest/nothing down and assorted other types of subprime mortgages.”