U.S. Real Estate Market Showing Signs Of Collateral Damage

The US Real Estate market has begun a dramatic slowdown even though the listing and pricing data does not reflect this data yet.  In short, more homes

Editor’s Note: this is a combined Part I and Part II post.

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by Chris Vermeulen of The Technical Traders

As we continue to digest economic and global data, our researchers have focused on Real Estate as we believe the contraction in the US economy, spanning corporate, main street, and millions of Americans, will quickly reflect in a slowing Real Estate market.  Our researcher attempted to dive into the most recent data from Realtor.com (https://www.realtor.com/research/) to identify any trends or insights we could find to prepare for a broader contagion event.

Current data suggests the US Real Estate market has begun a dramatic slowdown even though the listing and pricing data does not reflect this data yet.  In short, more homes are being pulled from active listings and those that are still listed are sellers that can wait out their price or are under pressure to sell because of other factors. Historically, Summer months typically result in a moderate decrease in price levels as more homes get listed for sale and “Days On Market” (DOM) lengthens.  Something big is starting to take place almost everywhere in the US as current data suggests inventory is shrinking, price levels are still moderately high and DOM level has increased dramatically.

News of recent delinquencies in the mortgage market shows an incredible increase in the number of mortgages under pressure.  We believe many borrowers will attempt to cash out of the market over the next 90+ days while price levels are high.  Many of these borrowers will be rolling the dice while they hold onto their homes hoping the economy/jobs come back before the end of 2020 while they watch the value of their homes decline.

Overall, across the entire US, median listing price levels have increased 1% YoY while Days on Market has increased 6% YoY and Active Listings have decreased 15% YoY.  Reading between the lines, this suggests to our researchers that sellers are trying to capture peak price levels while sales activity continues to decrease.  This also suggests that buyers are shifting into a more conservative buying mode – waiting for the right deal, better prices, and more distressed sellers.

Locally, most of the major markets have seen an incredible change in listing price, DOM, and active listing data over the past 30+ days.  This data represents the YoY data change related to data from April 11, 2020, to May 9, 2020.  This data reflects how trends are changing and how total counts are changing – not total price level changes or total trend count changes on a YoY basis.

Our research team believes this data suggests sellers are still entering the market trying to take advantage of high price levels, yet they are not entering the market as quickly as they were 30+ days ago (hence the drop in new listing data).  Additionally, the DOM increases suggest buyers are slowing their activities as well.  Simple Supply and Demand theory suggests when prices are high and buyers begin to lose faith in future price increases – the cycle shifts from rising price levels to falling price levels as buyers begin to wait out the better deals and wait for the bottom in the markets to setup.

I was on TraderTV a few weeks back with Mr. Wonderful (Kevin O’Leary) and he talked about the issue with real estate and his way to deal with it in this video clip.

In Part II of this article, we’ll continue to explore more data that suggests the Real Estate sector may become a big part of the next phase of the global economic collapse.  Early data suggests the market is shifting away from a seller’s market into a buyers market fairly quickly.  If our research is correct, all segments of Real Estate will become a bigger problem for banks and the economy as the shutdown continues.

We suggest you read this article from March 2020, WE ARE CONCERNED ABOUT THE REAL ESTATE MARKET:

If our research is correct, this shift is taking place right now and will likely continue into Summer 2020 as Main Street and millions of businesses suffer from the COVID-19 virus shutdowns.  Common sense would suggest an economic contraction reflecting millions in lost jobs, a major contraction in retail and other segments of the US economy and a severe issue with commercial real estate may lead to a broader contraction in residential real estate.  Buyers slow their purchases as more homeowners come under increasing economic pressure, prices begin to decline, and the cycle shifts from a seller’s market to a buyers market.

Right now, we are advising our clients to wait for stronger confirmed trading setups as we believe the current US market is still in a no man’s land related to price levels and future trends.  There is still a moderate change the US Fed buying will prompt a bit more upside price trend, but our modeling systems and technical indicators are suggesting a “double-dip” low will form as the collateral damage continues to become known.  This is the time for skilled technical traders to play very conservatively with their capital and to target bigger trends when the setup.

The next 24+ months are certain to be full of incredible opportunities for skilled technical traders – yet also full of risks.  We’ve already received emails from individuals who have been taking aggressive trades in certain sectors and gotten burned.  Follow our research and please understand the markets will do what they are going to do.  Our job is to find the right opportunities and to capitalize on them for profits.

I have to toot my own horn here a little because subscribers and I had our trading accounts close at a new high watermark for our accounts. We not only exited the equities market as it started to roll over, but we profited from the sell-off in a very controlled way. Also, we locked in more with this bounce in the markets, along with a move in natural gas and we are sitting with some gains in our new position in the next hot sector.

As a technical analyst and trader since 1997, I have been through a few bull/bear market cycles in stocks and commodities. I believe I have a good pulse on the market and timing key turning points for investing and short-term swing traders. 2020 is going to be an incredible year for skilled traders.  Don’t miss all the incredible moves and trade setups. 

I hope you found this informative, and if you would like to get a pre-market video every day before the opening bell, along with my trade alerts. These simple to follow ETF swing trades have our trading accounts sitting at new high water marks yet again this week, not many traders can say that this year. Visit my Active ETF Trading Newsletter.

We all have trading accounts, and while our trading accounts are important, what is even more important are our long-term investment and retirement accounts. Why? Because they are, in most cases, our largest store of wealth other than our homes, and if they are not protected during a time like this, you could lose 25-50% or more of your entire net worth. The good news is we can preserve and even grow our long term capital when things get ugly like they are now and ill show you how and one of the best trades is one your financial advisor will never let you do because they do not make money from the trade/position.

If you have any type of retirement account and are looking for signals when to own equities, bonds, or cash, be sure to become a member of my Long-Term Investing Signals which we issued a new signal for subscribers.

Ride my coattails as I navigate these financial markets and build wealth while others lose nearly everything they own during the next financial crisis.

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PART II

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Continuing our multi-part article related to our belief the Real Estate sector is about become the next big segment to begin to collapse as a result of the COVID-19 virus event and the extended shutdowns taking place throughout the globe, we’ll continue to review the data and explore various options for skilled technical traders.

In Part I, we shared some recent data that suggests the housing market is starting to fracture at quite a fast rate.  Today, we’ll explore additional data that could help us understand where opportunities exist and how to prepare for this potential second phase of a broader financial collapse.

Over the past few years, the housing market has continued to rally past almost everyone’s expectations.  The COVID-19 virus event was simply a catalyst for a revaluation event within a hyper-inflated financial system.  For nearly 20 years, global central banks continued to pour capital in the global markets attempting to spark inflation rates that supported rising interest rates.  This is like pumping Helium into a failing balloon attempting to keep it inflated and floating.  As long as the structure of the balloon does not rupture, it might hold up for a while longer.  Once the structure bursts, it’s all over.

With the housing market, the revaluation event that usually takes place is a contraction in price that usually lasts about 3.5 years.  Are we setting up another revaluation event in the housing market?

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WILSHIRE US REAL ESTATE SECURITIES CHART

This Wilshire Real Estate Securities Chart highlights the dramatic collapse recently in Real Estate values.  Overall, a decline of this magnitude happened near the end of 2008 – at the height of the Credit collapse.  Given the scope of the COVID-19 virus event, we believe this initial collapse reflects a bigger impulse move that could extend for many months into the future.  A breakdown below the 160 level would suggest confidence in the Real Estate market has completely collapsed.

S&P CASE-SHILLER US NATIONAL HOME INDEX CHART

The Case-Shiller Index has yet to reflect any real stress on the US Real Estate market – yet we believe this is because current listing price levels have yet to reflect the changes taking place in the underlying market dynamics.  Unlike the 2008 credit crisis, where Real Estate was a major factor in the collapse the took place, this time the economic collapse is a result of a pandemic that is expanding out into broader sectors of the economy.  Changes in the Case-Shiller Index may not be seen for another 30 to 60+ days.

US CONSUMER PRICE INDEX CHART

The CPI chart suggests a broad decline in consumer costs of all items recently.  Pay attention to how deeply the CPI level contracts over the next few months.  Certain items may inflate while others deflate throughout 2020.  We believe this is very likely as we believe a “revaluation” process is taking place throughout many global markets.  Real Estate, being one of the most expensive purchases anyone can make, will likely revalue as well.

ADV. RETAIL SALES INDEX CHART

This Retail Sales chart highlights one of the most dramatic downturns in US history over the past 30+ years.  The COVID-19 virus event is collapsing the economy in ways we’ve never experienced before.  A collapse in demand (consumer retail and other purchases) also collapses tax revenue, business earnings, global economic spending, and GDP.  Our research team believes the global GDP could contract by as much as 25% to 30% over the next 24+ months

CONCLUDING THOUGHTS:

Right now, we are advising our clients to wait for stronger confirmed trading setups as we believe the current US market is still in a no man’s land related to price levels and future trends.  There is still a moderate change the US Fed buying will prompt a bit more upside price trend, but our modeling systems and technical indicators are suggesting a “double-dip” low will form as the collateral damage continues to become known.  This is the time for skilled technical traders to play very conservatively with their capital and to target bigger trends when the setup.

The next 24+ months are certain to be full of incredible opportunities for skilled technical traders – yet also full of risks.  We’ve already received emails from individuals who have taken aggressive trades in certain sectors and gotten burned.  Follow our research and please understand the markets will do what they are going to do.  Our job is to find the right opportunities and to capitalize on them for profits.

We suggest reading the following:

One of the most interesting research articles we published in January 2020 was NASDAQ SET TO FALL 1000PTS IN EARLY 2020, AND WHAT IT MEANS FOR GOLD: https://www.thetechnicaltraders.com/nasdaq-set-to-fall-1000pts-in-early-2020-and-what-it-means-for-gold/

Additionally, we published this article which highlighted the similarities of the current market peak to 1999: https://www.thetechnicaltraders.com/current-rally-similarities-to-1999-are-we-nearing-a-top/

If you want to improve your accuracy and opportunities for success, then we urge you to visit www.TheTechnicalTraders.com to learn how you can enjoy our research and our members-only trading triggers (see the first chart in this article).  If you are managing your retirement account or 401k, then we urge you to visit www.TheTechnicalInvestor.com to learn how to protect your assets and grow your wealth using our proprietary longer-term modeling systems.  Our goal is to help you find and create success – not to confuse you.

In closing, we would like to suggest that the next 5+ years are going to be incredible opportunities for skilled traders.  Remember, we’ve already mapped out price trends 10+ years into the future that we expect based on our advanced predictive modeling tools.  If our analysis is correct, skilled traders will be able to make a small fortune trading these trends and Metals will skyrocket.  The only way you’ll know which trades to take or not is to become a member.

Chris Vermeulen
Chief Market Strategist
Founder of Technical Traders Ltd.