Next Phase of Housing Collapse Ahead

Even as optimism over a possible housing recovery continues to unfold in the mainstream media, there are signs that the next phase of the housing meltdown is about to come underway with a new wave of foreclosures in the pipeline. In spite of the housing market undergoing a larger decline than the decline that unfolded during the Great Depression, we are still seeing calls for a bottom and a recovery in the housing, such as calls for a recovery as published on the Wall Street Journal. The fact that we are still seeing calls for a recovery is an indication that the housing market is still sliding down the "Slope of Hope" (there is more hope for a recovery than there is fear of a fall even as prices continue to decline).

Ever since the housing bubble burst in 2005, real estate prices have been in a long term decline as the bubble continues to deflate. Just as progression does not unfold in a straight line, bear markets do not unfold in a straight line. With every bounce that has unfolded within the larger decline in the housing market, there have been attempts to call a bottom and a recovery. There has been a bounce in the housing market in the last few months, which economists and journalists have taken as a sign that a recovery is unfolding, but is really yet another dead cat bounce that will soon give way to new post-bubble lows.

The bottom is still a long way down. Before there can be a bottom, there has to be a point of recognition that the housing market is in a long term bear market trend. The point of recognition may not come until around 2025 (the center of Primary wave [A] of Cycle wave y within a W-X-Y structure for Supercycle wave (a)).

The next wave of foreclosures is coming, which is apparent even to the mainstream media as banks pick up the pace of foreclosures after a slowdown last year following the "robo-signing scandal". There is also a large shadow inventory backlog that must be worked through before any real housing recovery is possible. However, the next wave of foreclosures is likely to be much worse than what is being forecast by economists and the mainstream media as the effects of a social mood decline following the business cycle high point in June 2012 will usher in the next decline in the job market as around 10 million people lose their jobs between June 2012 and June 2016, which will greatly increase the number of people losing their homes through foreclosure and accelerate the decline of real estate prices.

At the climax of the meltdown in housing, which is expected to occur around 2042 as "The Great Deflation" comes to its epic conclusion, there will be a historic buying opportunity as people that successfully make it through the deflationary collapse without getting financially wiped out will be able to buy the house of their dreams for pennies on the dollar. At the climax of the deflationary collapse, there is expected to be a lot of disdain for real estate with bearish sentiment pervasive in the mainstream media and the political arena.

The Great Deflation in Housing

For the last several days, there has been talk in the media about the decline of the housing market and how it is now worse than the decline that took place during the Great Depression. The latest article from CNBC is here. Yet, for all the decline that has taken place since the bursting of the housing bubble in 2005, we are still seeing calls for a bottom and recovery.

We didn't have a double dip in the housing market with a temporary bounce that was mostly fueled by the home buyer tax credit that was passes by the Obama Administration in February 2009 as part of the $787 billion stimulus package. The bounce would actually be characterized as a bear market rally within a larger downtrend. The bounce has since been fully retraced and a resumption of the larger downtrend is unfolding.

The long bear market in housing is a strong argument against the idea of a "Great Recession" that ended in 2009. The bear market is unfolding not only in the form of falling home prices, but also in the form of rising foreclosure rates that continue unabated.

The reason why we still see calls for a bottom in housing is that the housing market is sliding down the "Slope of Hope", in other words, the bear market in housing is still in its early stages and is just getting started. The deflationary collapse in the housing market is part of a larger picture, that is, we are in a major depression.

Expect the housing market to continue collapsing as "The Great Deflation" begins to unfold in full force. The consequence of a collapsing housing market is that by the time the bottom is reached in 2021, virtually every home owner with a mortgage debt will be miles underwater on their mortgages. Expect at least a 90% decline in house prices during the course of "The Great Deflation", which would take house prices down to levels not seen since 1960.

By the time the deflationary collapse of the housing market is done in 2021, entire neighborhoods are going to look a lot like the abandoned city scenes from the movie I Am Legend with bushes, weeds, and trees reclaiming homes that fall into foreclosure.

For those who are able to make it through "The Great Deflation" without getting financially wiped out, there will be an unprecedented buying opportunity that will make it possible to buy a high-end house for cheap.