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Housing Crisis
Christian Hudspeth

Countdown to the US Housing Bust of 2017, 2018, and 2019

by Christian Hudspeth | Dun & Bradstreet Editor

August 5, 2015 | 6 Comments »

Existing US homes sold at the fastest clip in six years in June, according to the latest data from the National Association of Realtors. Meanwhile, median existing-home prices reached an all-time high of $236,400 per single-family home that month — surpassing the previous high of $230,400 from July 2006, when the last US housing boom was in full force.

But the good times in the housing market may not last much longer. Take it from Bank of America analyst Chris Flanagan, who called the subprime mortgage market in 2007 “very bleak” months before the housing bubble finally busted in the US.

In today’s market, Flanagan is predicting the US housing market will start reversing course in 2017, with “modest” declines for three straight years — 1.7% in 2017, 2.1% in 2018, and 0.8% in 2019.

The reason? Wages are not keeping up with the explosion in house prices.

While most analysts don’t believe that a bust is coming, Flanagan’s theory certainly makes sense. Consider that median home prices in the US have jumped more than 40% from $164,900 in 2010 to today’s $236,400, according to the latest Fed data.

Over the same time period, inflation-adjusted wages have barely budged, growing a paltry 5% from $52,646 to today’s $55,132, based on data from Sentier Research.

Home Prices Far Outpacing Wages Since 2010

2010 Today % Change
Wages $52,646 $55,132 +5%
Home Prices $164,900 $236,400 +43%

Sources: Federal Reserve, Sentier Research

For those who think this is overly simplistic, consider this fact: Despite the strong housing recovery over the past few years, RealtyTrac’s June report revealed that there were still 7.4 million mortgage borrowers, or 13% of all mortgage properties, that were “seriously” underwater (defined as the loan amount being at least 25% higher than the property’s estimated market value) — a percentage that has actually ticked up for the past two quarters.

How could this be? As this article details, a report from Weiss Residential Research finds that roughly 50% of the homes in the nation’s top markets are losing value.

“Larger, more expensive homes are sitting on the market longer and seeing more price cuts than smaller homes with two bedrooms or less,” explains Alan Weiss, founder of the research firm.

In other words, as wage growth has come to a crawl, consumers have been opting for cheaper homes over more expensive ones.

But as today’s cheaper home prices rise in value and become out of reach for more and more potential borrowers and buyers, look for housing price hikes to come to a halt, or even reverse course, if you’re in Flanagan’s camp.

The Bottom Line: Sales and marketing professionals and other prospectors should look for luxury and higher-price homebuilders like Standard Pacific Corp and Toll Brothers to be hit the hardest as this trend continues.

Meanwhile, expect top affordable and move-up homebuilders like Lennar, NVR (the builder of Ryan and Heartland Homes), and D.R. Horton to ride out the good times longer … and be better positioned to wait out the potential storm ahead.

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Christian Hudspeth is a company analyst for Dun & Bradstreet who researches and reports on more than 1,000 banks and construction firms for Hoover’s company database subscribers. Before joining Dun & Bradstreet, Christian was a managing editor, senior financial writer and analyst for a financial publishing company. His financial articles have been featured on MSN Money, Business Insider, Nasdaq.com, and several other well-known online publications. Before he was an editor, Christian worked in the commercial banking industry for seven years.

Interesting. I’ve lived in NYC for years and the real estate market is broken here. People from all over the world are dying to get in and are willing to pay outlandish prices, which makes it very difficult for the average earner to compete. I’ll be curious to see if the trend you’re predicting will apply to the city.

    Christian Hudspeth

    Thanks for reading Rachel! A similar occurrence is happening here in Austin, TX as well. A lot of people can sell their tiny homes in New York or California and buy a mansion (by comparison) here. Housing prices go up as a result, and then it’s hard for Austinites to keep up with the tax increases. We’ll see how it all shakes out!

Hey there I live here in Southern California and housing here is just way too overinflated. The area I am specifically talking about is the Pasadena/La Canada area. Back in the 1990s you could buy a 3k square foot home for about $650,000. Now that same house is worth about $2.5 million! Do you see another housing crash in this area? Some homes are selling higher than 07 prices here mainly because of foreign cash buyers. Unfortunately I do not live in that area anymore but plan on doing so one day. How much longer should I wait for housing prices to collapse in that area? Thank you.

Who cares about Chris Flanagan and BofA. BofA bought out Countrywide, the subprime mortgage leader and the spear head of all crap loans. If Flanagan were busy at his desk making “predictions” then why didn’t he do the millions of clients a favor and put a noose around his decapitators of the average joe home owner. Bank of America wanted all their Short Sale defaulters to sign a doc stating that Bank of America could collect on the difference of the loss. Bank of America also took one of the largest bailout chunks offered to banks. Was Flanagan part of the “dubble dippers”?

I could not agree more. It is coming but 2018 may not be the exact date. With the GOV bailouts could extend the bubble ( yes it is a bubble) TV shows, flips, its classic .

housing is not going collapse like it did again for a long time. It’s not going to rise much more either. some areas will see less than 2% increase while other may lose 2%. Flat line for the next 2 or 3 years. small increases after that for next 3-6 years as wages begin to adjust in the private sector. Real Estate will not be the investment it once was but will stabilize. if the interest rates were to rise back like they did between 2003-2006 will go on a steady fall. I see interest rates tied to wage increases for the near future. so any raise you get in the future will slowly be negated by the feds with a small increase.

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