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U.S. Housing Market: Not “a Bubble This Time Around”?

Here’s what usually coincides with a big decline in real estate prices

by Bob Stokes
Updated: July 29, 2021

You probably know that the U.S. housing market has been red hot.

A certified financial planner wrote a July 20 article for Kiplinger, mentioning the record price levels in many areas of the country, and then added a personal observation:

I witnessed the price rise first-hand. I recently returned from a family vacation in the North Carolina mountains, where many homes now sell for double or triple the price compared to just a couple of years ago.

Stories abound of buyers signing contracts on homes without even doing a walk through. Some real estate agents are advising buyers to forgo inspections, saying they will just slow the process.

Yes, it's a maniacal residential real estate market.

Indeed, here's what the recently published July Elliott Wave Theorist had to say:

Two excerpts from an article posted last week on the property market in my local area sum up the prevailing view:

First,

"It's the craziest market that I've seen in 25 years of experience," [Mr. X] said.

But,

[Mr. X] said he believes there will not be a bubble this time around, unlike the situation that unfolded in 2008.

It is ever the same: "I remember a top yesterday, and there may be a top in some distant future tomorrow," but there is never a top today!

The same type of psychology applies to stocks. Indeed, the trends of the real estate and stock markets tend to be strongly correlated.

This chart from Robert Prechter's 2020 edition of Conquer the Crash has been shown before in these pages, and it's a good time to show it again. Here's the brief commentary:

RealEstateDeclines

Real estate prices have always fallen hard when stock prices have fallen hard. The chart displays this reliable relationship.

So, if you want to get a good idea of when home prices will likely tumble, keep an eye on the Elliott wave pattern of the stock market.

In other words, when stock market prices enter an inevitable bear market, expect real estate prices to sharply decline around the same time.

You can get instant access to our analysis of the main U.S. stock indexes by following the link below.

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