If everybody thinks a crash is coming, and this opinion has held for about a year, does that mean all the shorts are in? What usually happens when all the shorts are in and noone can be found that isn't already short as much as they are willing? Of course this begs the question: Are all the shorts in yet? -Raystonn
Not just homebuilders. All real-estate investments. Would you say most of the shorts, across the board, are in at this time? CME's real estate futures are of particular interest to me at the moment. -Raystonn
Simply track interest rates and the NAHB Index. These will tell you what to expect... Until now the markets have tracked both fairly evenly. Recently the NAHB has turned down....Traditionally this means the broader market will follow..Either it will or it won't...If these indicators decouple from the larger market, it will mean that the economy is showing strength, and that investors are confident in the future...and will continue to risk money, if not you have a good short signal.. You're welcome Steve
There is a big difference between residential RE and commercial RE. Know your product before you trade it.
Take a look at the chart in this article.... "The chart below is rather intriguing - the NAHB homebuilders index leads the S&P 500 by 12 months and with a near-80% correlation - a correlation that over time has actually strengthened, owing to the growing influence that the real estate market has exerted on the overall economic and financial landscape over the past five years. In fact, we can trace almost two-percentage points of the 3 1/2% average annual rate in real GDP over that time frame to the boom in housing construction and home prices - the direct impact on homebuilding, the spin-offs to other sectors like real estate services, architecture, engineering, legal, etc and the multiplier impact from the 'wealth effect' on consumer spending, especially on home improvements and household furnishings." http://www.safehaven.com/article-5772.htm
They even state in that article that the correlation breaks down when you look at earlier time periods. So they've basically cherry picked the time period during which it seems to correlate. If the S&P 500 hadn't correlated they would have looked at the Dow, then the Nasdaq, then the Russell, then a Smallcap index, etc. etc. until they found something that correlated for a few years. This is simple random chance. Given enough charts and enough years, a many will correlate due to complete random chance. In other words, the correlation is completely meaningless. -Raystonn
I think widespread recognition of deflation in real estate is still a long way off. From a sentiment standpoint, we appear to be just ending the topping process and starting down the other side. My observation of markets over the years has convinced me that major (as in many, many years long) tops and bottoms take far longer to complete than most people think. Your post is an example of what is often seen around the time a topping process is near an end - a belief that it's already over just as the new downtrend is getting started. In other words, some people who've observed the beginning of the trend change interpret it as a "correction" of shorter duration, rather than a major trend change. I'd suggest great patience before calling a low in RE. Not that there can't be bounces back up along the way, but I think the trend is down, and it's going to get very, very nasty before it is finally over, and RE values will reach lows that are "unbelievable" today. Think about it, though, who'd have believed you in August 1982 with short term rates at 8% and the DJIA at 777 if you had said the DJIA would reach 11,000 plus in less than 20 years? "Impossible", right?