Trouble Ahead For The Housing Market

Trouble Ahead For The Housing Market

Our good friend John Rubino over at just released an analysis titled US Housing Bubble Enters Stage 2: Suddenly Motivated Sellers.

He reminds us that housing bubbles follow a predictable progression:

  • Stage 1: Mania — Prices rise at an accelerating rate as factors like excess central bank liquidity/low credit standards/hot foreign money drive a virtuous bidding cycle well above sustainably afforable levels.
  • Stage 2: Peak — Increasingly jittery owners attempt to sell out before the party ends. Supply jumps as prices stagnate.
  • Stage 3: Bust — As inventory builds, sellers start having to lower prices. This begins a vicious cycle : buyers go on strike not wanting to catch a falling knife, causing sellers to drop prices further.

Rubino cites recent statistics that may indicate the US national housing market is finally entering Stage 2 after a rip-roaring decade of recovery since the bursting of the 2007 housing bubble:

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