Every day, I get pounded by experts who insist that the bottom is here in real estate and that it is time to load the boat. I therefore find the chart below pricing US residential real estate in gold for the last 40 years.
After peaking in 2002, house prices have death spiraled 75% when priced in gold, and now are the cheapest they have been since 1983. If the withdrawals of stimulus programs lead to another leg down in home prices, this chart suggests that the fall will be limited to only 10%-15%.
With the banks choking on millions of foreclosed properties, that is still big enough to trigger a secondary banking crisis. If you use broader definitions of inventory that include aspirational sellers on any uptick, there are probably 26 million homes either for sale, or about to hit the market in the US. With the total jobless in the country reaching 35 million, and another 35 million homeowners under water on their properties, there are 70 million buyers missing from the market.
Add in also the fact that downsizing by retiring baby boomers could be as much as 4 billion square feet a year, which roughly amounts to a city the size of San Francisco. Obtaining credit for new home purchases is another can of worms. I continue to believe that residential home prices will grind sideways to slightly up for a decade, and in worst case, will take a second leg down.
From the Diary of a Mad Hedge Fund Trader.