They say that the stock market doesn’t react to the news; it foretells it. Well, the recent action in the stock market is foretelling bad things for the real estate market.
Fannie Mae, the single most important cog in the real estate wheel, has been making multiple-year lows for quite a while now (fruad tends to do that to a stock):
The nation’s largest homebuilders, after peaking back in July, are now showing signs of real distress, as well. In fact with the Dow Jones U.S. Home Construction Index down over 20% from its July peak (the most widely accepted definition of a bear market), Mr. Market is telling us that real estate has officially entered a bear market:
And only the most recent data confirms what these visual signals have been telling us for months. Prices for homes in the highest of high-end markets such as Malibu (-5%), Pacific Palisades (-25%) and La Jolla (-23%), California in addition to Manhattan apartments (-13%) have all shown price declines in the 3rd quarter.
These are only the first signs of weakness for the housing bubble. This is only the beginning of the end. What worries me, even much more than the potential downside for real estate, are its ramifications on our economy and even our way of life.