Drudge linked, Economist on housing bubble: We never left the bubble, its bubble inception

He didn't short the bubble in 2008, so take his 'prediction' for what it's worth

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U.S. home prices are surging to new records. Homebuilder stocks last year outperformed all other groups. And bears? They’re now an endangered species.

Stack, 66, who manages $1.3 billion for people with a high net worth, predicted the housing crash in 2005, just before prices reached their peak. Now, from his perch in Whitefish, Montana, he says his “Housing Bubble Bellwether Barometer” of homebuilder and mortgage company stocks, which jumped 80 percent in the past year, once again is flashing red.

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Just going to say before quoting any more: The enormous, extreme growth in real estate cost over the last 20 years has been driven in large part because the fed has decided to see what would happen if they just eliminated interest for 20 years. (my opinion).

People buy houses based off of what payment they can afford, not what the sticker price is. When interest rates are effectively 0 for decades, the sticker price goes up to reflect the lower interest rate. If interest rates ever go up significantly, as they are soon to do, current sticker prices become out of reach of most people, because what they could afford at 4% interest, they could never afford at 8%. So current homeowners take a bath and can't sell their homes at the current inflated prices, because no one can pay.

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“It is 2005 all over again in terms of the valuation extreme, the psychological excess and the denial,” said Stack, whose fireproof files of newspaper articles on bear markets date back to 1929. “People don’t believe housing is in a bubble and don’t want to hear talk about prices being a little bit bubblish.”

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Homebuilders, which have focused on pricier homes since the market bottomed in 2012, are now getting ready for a wave of first-time buyers left with little to choose from on the existing-home market. Investors are rushing to builders of starter homes, because lower-priced homes in the U.S. are in the shortest supply. Shares of LGI Homes Inc., which targets renters with ads that trumpet monthly payments instead of prices, rose 161 percent last year. D.R. Horton Inc., the biggest builder, powered by its fast-selling Express entry-level brand, gained 87 percent.

Overall, the S&P 500’s index of homebuilders increased 75 percent last year, about four times as much as the stock market as a whole. A subset that includes just the three largest builders was the best performer of the 158 S&P groups.

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