The Real Deal Miami

“It is 2005 all over again in terms of the valuation extreme, the psychological excess and the denial”: Bear warns that housing market is overheated

Home prices, sales and interest rate indicators teetering at pre-recession levels
January 22, 2018 02:30PM

The homebuilding market is stronger than ever, but not everyone is bullish.

Montana-based money manager James Stack, who predicted the last recession in 2005, told Bloomberg the U.S. may be riding high on another bubble. As key indicators that the market could topple, Stack pointed to Fed interest rate increases and high median home prices. He also cited his “Housing Bubble Bellwether Barometer” of homebuilder and mortgage company stocks, which has shot up 80 percent in the last year.

“It is 2005 all over again in terms of the valuation extreme, the psychological excess and the denial,” Stack said. “People don’t believe housing is in a bubble and don’t want to hear talk about prices being a little bit bubblish.”

The S&P CoreLogic Case-Shiller Home Price Index shows that home prices are 32 percent above the Consumer Price Index. It was 35 percent higher in 2006, just before the downturn. The Fed is projecting three rate increases this year, similar to the increases that slowed down the economy before the recession.

The number of new home construction contracts hit 236,000 in September, the highest since January 2007. Many of those contracts were recorded in the South, possibly because of the destruction by hurricanes Harvey and Irma last year.

A month later, new home sales rose to 6.2 percent month-to-month — the largest jump in a decade.  [Bloomberg] — Dennis Lynch