There is nothing remotely “normal” about the echo-bubble’s rise, and we can anticipate that its deflation will be equally abnormal.
Conventional wisdom on the resurgence of the housing markets takes one of two paths:
1. Housing is not in a bubble, it is merely returning to “normal”
2. Housing is bubbly in some markets, but prices will continue to rise First up: home prices, as measured by the Case-Shiller Price Index. Note the near-perfect symmetry of the echo-bubble: it has taken roughly the same time-span to inflate and reach a top as the first housing bubble from January 2004 to its peak 2 years later. Here’s an alternative view: housing is in an echo-bubble that’s popping. Courtesy of the excellent Market Daily Briefing, here are some charts that make the case that the housing echo-bubble was just another Federal Reserve-induced speculative asset bubble that’s popping, like every other speculative bubble in recorded history. The echo-bubble has topped out at about 50% of the decline from the primary bubble top to the trough in 2012.
This post was published at Charles Hugh Smith on WEDNESDAY, AUGUST 27, 2014.