Posts Tagged ‘North American Real Estate’

Welcome to the top of the ride … all downhill from here.

There is an adage in the market that says,

“Sell in May and walk away.”

Well, there are many leading indicators that are now pointing DOWN, way down.

From the Treasury Market Inflation Forecast to the Economic Cycle Research Institute’s (ECRI) Long Leading Index of global industrial growth, these indicators are showing that the “W” of recovery is more likely.

Given that the US housing market has not rebounded as was once hoped, that the QE and QEII have only resulted in a short term bull rally in the stock market and a temporary easing of short term bond rates and not the much touted employment that the bankers and others from Wall Street and DC were promising was ‘on the way’.  Indeed employment numbers are stalled, much like the sense one has in a roller coaster car just as you reach the top of the first ‘hill’ after being released from the lift chains.  We have had a drop and a ‘scare’ now the real ride begins.

Richard Russell, 86-year old author of the Dow Theory Letters commented as follows on the deteriorating market breadth: “This is a bearish picture. The ‘soldiers’ are deserting even while the ‘generals’ continue to march forward. In a war, this would be a prelude to disaster. In the stock market, it may be the same.”

I agree with that sentiment and add in argument that the broader market place is going to go into a panic situation, this summer will be pleasant enough, like the roller coaster car moving gently along the top of the rail in a near flat grade.  By this autumn?  Well Kondratieff Winter will blow in for real with a storm to remember …

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Good to recall the incident that started this particular snowball effect we are still living in.

After viewing this consider that the Alt-A and Option ARM’s that are going to re-set over the next two years.

Combine this with the many Commercial properties that are coming up for renewal over the same period and the only conclusion that is rational is that prices are going to decline. Again.

No point in arguing the issues, only in what to do about it.

Expect another 10-33% drop in residential value, possibly a 66% drop in Office, Industrial and Retail property with an anticipated 20-45% drop in Multi-Family residential.

Many will argue that the residential values will not drop so much. I respond that in certain markets, yes there will be possibly no drop. As a whole the North American (yes Canada included) market is facing a financial chasm larger than ever before.

1) falling SFR prices and values will make it cheaper to own someone else’s foreclosed house, therefore downward pressure on the rental market.
2) wiping out the retail marketplace, the internet for commerce is a factor that cannot be ignored.
3) with 1/3 less in their numbers, those who come after the baby boomers will not have the same volume to buy the homes and businesses that will be coming onto the marketplace in ever greater numbers … this alone accounts for a 33% drop (if not more) in all asset values.

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