I was one of the few, along with Robert Shiller, predicting that the real estate bubble in the U.S. was getting ready to burst back in late 2005.
Home sales had peaked in July 2005.
Home prices peaked nine months later, in April 2006.
The Fed and most analysts bullshitted that the subprime loan crisis was containable and no big deal. Ha! What a joke. And typical of those idiots.
What they missed was that real estate spending on trade-up homes peaks around age 41. Overall spending peaks at age 46.
In fact, the infamous Roaring 20s bubble saw real estate prices and home starts peak in 1925, five years ahead of the stock market and peak in late 1929… the same five-year lag for peak spending overall versus real estate.
But, for the Boomers, there was an additional trend the “experts” missed…
That is, the Boomers were offered the most aggressive lending for home buying in history.
All types of teaser rates that converted higher later, no-doc loans, little or no money down, and the worst, affordable rates on subprime loans that were bundled up into seemingly low-risk mortgage securities sold to unsuspecting institutional funds and everyday households.
Falling inflation and mortgage rates also added to the trend – another thing I predicted would happen into 2007 while the “experts” missed it.
These factors extended that boom and bubble into late 2005/early 2006 when it would have naturally peaked by late 2002.
The downturn between 2000 and 2002 would have also crimped home buying demand and created much pent-up demand at first in the boom from 2003 forward.
Now, look at this…
Look how real estate started to fall ahead of stocks and the economy.
That red line follows the Dow U.S. Home Construction Index. It peaked on July 28, 2005, 26 months before the Dow peaked on October 9, 2007, by which time it was already down by a whopping 65% on its way to a bottom down 73% in early 2009.
