Ned Davis Research cranks out some great stuff.
I'm looking at an NDR graph that measures the median home price to median household disposable income in the United States since 1977. According to the graph, housing prices to household disposable income has averaged 404.5% over the last 30 years.
During the previous housing boom, that ratio hit a high of around 430%. Never had the ratio risen above one standard deviation from the mean.
Until, of course, today, where it rose to 514.8%, three times the standard deviation!
In my mind, there is no doubt we are in the midst of a housing bubble, which is now popping. The cause of the housing bubble has been excess monetary creation the central banks - particularly the Fed - have been so kind to generate. The (ex) bulls in housing (I don't think there are any left) rationalized the boom to factors such as increased immigration, restricted land, rising incomes, increased demand for second homes, aging baby boomers, etc. The problem with this argument is that housing prices have soared around the world, with even more stretched readings in the UK, Australia and various other countries. Were all those factors prevalent in those countries as well?
What was prevalent was the oceans of dollars the Federal Reserve unleashed on the global financial system.
My guess is that we will muddle through this, and there won't be a cataclysmic collapse like some of the hardcore bears are arguing. I think the end-game will be below potential growth and flat-lining or slightly declining housing prices for the next several years. But the risk of a hard landing is high.
And I bet Bernanke doesn't let that happen.
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