So, when should the Fed start buying up millions of homes?
Assuming the answer is "it's not," said Charles Hugh Smith of the Of Two Minds blog that prices are going to be hard all over the country.
The latest data will hardly track his gloomy outlook.
The S & P CoreLogic Case-Shiller 20 index index shows that housing price growth is finally shouting. The meter rose 0.2% in December to November and 4.2% year-on-year – the slowest pace of annual growth since 2014.
Read: Why bubble-era mortgages are a disaster waiting to happen
Smith said that bursting bubbles tend to follow a symmetrical reversal in terms of time durations and sizes of their original growth.
"If the bubble took four years to inflate and rose by X, the decline tends to take about the same time and tends to track a lot or all X," he wrote.
He used this chart of Case-Shiller Housing Index as an example:
Smith explained that the Fed, by lowering interest rates to near zero and buying mortgage-backed securities, did not allow the first bubble on the chart to run the course. However, this time it is "no longer saving in the Fed's locker", he warns, adding that this decline will start this year and end around 2025.
But which way will it take?
Smith said that more realistic analysts out there would at least agree that some fall in prices is an opportunity and that would look like the milder scenario.
Now that's how he understands it.
"This is a good case for Scenario 2, where the price falls during the downturn in 2012 and continues to go, and eventually the whole house's bubble gains from 2003," he said, adding more factors such as massive student debt to insufficient income. Supporting nosebleed prices, exit from Chinese buyers, etc.
"The economy has changed, and the victims required to buy a house in hot markets at today's prices, makes no sense," Smith concluded. "The only question of any real interest is how low prices will fall by 2025. We are so used to being surprised at the upside that we forgot, we can also be surprised at the downside."
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