Today, it was reported that the median price of a single-family home dropped 2.3% in August. The stock market sold off on the news. For some perspective into the all-important US real estate market, today's chart illustrates the US median price of a single-family home over the past 39 years. Not only did housing prices increase at a rapid rate from 1991 to 2005, the rate at which housing prices increased – increased. That brings us to today's chart which illustrates how housing prices are currently 30% off their 2005 peak. In fact, a home buyer who bought the median priced single-family home at the 1979 peak has seen that home appreciate by a mere 4%. Not an impressive performance considering that three decades have passed. Over the past two months, single-family home prices have resumed their decline and remain (until proven otherwise) in an accelerated downtrend.
What's important to realize is that the rise in home prices has not reflected any of the momentum of the stock markets....or all the unabashed optimism of economists and policy markers. This chart is reflective of a market in a wave 3 decline. We still have not gotten a wave 4 consolidation nor are we anywhere near making a wave 5 low.
This is not good news for Bernake...nor is it good news for Peter Schiff or Marc Faber or those bears who recently capitulated. Lower real estate and land prices will collapse balance sheets further and blow up all those off-balance-sheet entities and SIV's to the point of no return.
