Hawai'i, especially on the Big Island, has been experiencing steep deflation in the housing market. Construction jobs are at about 30% unemployment here now. The residential real estate market has been in the doldrums for a couple of years now.
Investment advisor, Mike "Mish" Shedlock, in commenting on the current condition of the real estate market in Vancouver and Calgary, Canada, identifies a post-peak pattern of housing market declines in the U.S. His pattern appears to be very close to what we observed in the Big Island housing drop. It is worth a look for future reference. Here it is:
Housing Collapse Cascade Pattern
- Volume drops precipitously
- Prices soften a bit
- Inventory levels rise slowly
- Higher-end home process remain relatively steady for a brief while longer
- The real estate industry tries to convince everyone it's "business as usual" and homes are affordable because rates are low
- Bubble denial kicks in with media articles everywhere touting the "fundamentals"
- Stubborn sellers hold out for last year's prices as volume continues to shrink
- Inventory levels reach new highs
- Builders start offering huge incentives to clear inventory
- Some sellers finally realize (too late) what is happening
- Price declines hit the high-end
- Increasingly desperate sellers get creative with incentives, offering new cars, below market interest rates, trips, etc.
- Gimmicks do not work
- Price declines escalate sharply at all price levels
- The Central Bank issues statements that housing is fundamentally sound
- Prices collapse, inventory skyrockets and builders holding inventory go bankrupt
Mish notes, "Some of those may happen simultaneously or in a different order, but the whole mess starts with a huge plunge in volume."
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