Canada's Housing Bubble

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Realty Check: The Experts Failed To See The Housing Crisis Coming Print E-mail
Aug 27, 2010 Nico Isaac elliottwave.com
On Tuesday, August 24, the National Association of Realtors released its long-awaited existing home sales report. "Long-awaited" because it would finally prove whether the U.S. real estate sector was strong enough to breathe on its own after having the homebuyer tax credit "respirator" removed.
The diagnosis: Total System Failure. To be exact: home sales plummeted 27.2% in July; the data's biggest one-month drop ever. In the words of one news source: "The US housing market is dying... As statistic after statistic continues to roll in, the reality of what is happening is becoming very difficult to deny." (Business Insider)
Also increasingly difficult to deny is the fact that so many mainstream officials were as blindsided by the housing collapse as Joe Schmo on the street now facing foreclosure. It's time to "short" the economists, suggests one recent business blogger. "The vast majority of these same 'experts' completely missed the $8 Trillion housing bubble in the United States." (Truthdig)
He's absolutely right. For the last five years, the mainstreet advice posse rode the housing bandwagon and played "I Spy" a long-term boom all the way to its precipice-plunging end. Here, the following archive of mainstream insights resets the scene:
  • January 2005: "Creative financing” can give “poor-credit buyers… the home of their dreams.” (Associated Press)
  • March 2005: “There is a new paradigm in real estate in which prices will continue to rise indefinitely.” (CBS)
  • June 2005: Time Magazine cover story titled “Home $weet Home” reaffirms the get-rich-quick-nature of real estate.
  • September 2006: The first drop in home prices in ten years: “This price drop has stopped the bleeding. It seems the sector has now hit bottom.” (DJ MarketWatch)
  • October 2006: “It may not be too soon to say that the worst is over.” (Alan Greenspan)
  • July 2007: The subprime implosion “is a contained, isolated and temporary event with little risk of wider fallout.” (A London conference with heads of U.S. investment banks)
  • October 2009: "...by helping to stabilize the housing market, the home buyer tax credit has helped to shore up the economy as it begins to recover." (Bloomberg)
On the other side, Elliott Wave International president Bob Prechter saw the cracks in housing's foundation long before they were visible to the masses. In his 2002 best-selling book “Conquer the Crash,” Bob wrote:
“What screams ‘bubble,’ giant historic bubble, in real estate is the system-wide extension of massive amounts of credit to finance property purchases… When prices begin to fall, lenders will experience a rising number of defaults on the mortgages they hold.”

Three years later, the animal spirits surrounding the U.S. housing bull had become stronger than the animal itself. Our analysts saw the potential for a serious breakdown and issued the following alerts:

March 2005 Elliott Wave Financial Forecast issued these unbelievable (at the time) warnings:

· There is "potential for a serious unraveling of the housing market."
· The S&P Homebuilding index would suffer a dotcom-like fall.
· And, "as the most aggressive dispensers of credit to the housing industry, subprime firms are on the front edge of the housing bubble."
The same issue also likened the near vertical rise in the S&P Homebuilder Composite Index to the notorious NASDAQ rally from October 1998-2000, AND suggested a similar fate was due the former.
July 2005 Elliott Wave Financial Forecast removed all doubt and wrote:

"There's no mistaking it now. The extreme psychology has taken up residence in real estate. Now is the most dangerous time to be on board the home bandwagon. There’s no mistaking who the Enrons of the bust phase will be. They will be the firms now peddling adjustable-rate, no interest/nothing down and assorted other types of subprime mortgages.”

Now -- the following charts reveal with what precision Bob's forecast for a real estate bust was fulfilled:

AND -- from the April 2010 Elliott Wave Financial Forecast:

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