Gloomy outlook set to continueTechnology | Prashant Gopal 10 Jan 2019
James stack, who predicted the 2008 real estate crash and nailed last year's housing slowdown with uncanny timing, is back with some bad news for 2019.
"Housing could be heading for its worst year since the last housing crash," said the 67-year-old. "Expect home sales to continue on a downward trend in the next 12-plus months. And there's a significant downside risk to housing prices if a recession takes hold."
Last January, Stack was practically alone when he warned rising mortgage rates would expose housing's affordability problem and "the risk that today's highly inflated housing market will again end badly."
Almost a year later, the signs of coming distress in property markets - and the broader economy - are only increasing, said Stack.
Home purchase contracts in the United States fell 7.7 percent in November.
Stack, who manages US$1.3 billion (HK$10.14 billion) for people with a high net worth, predicted the housing crash in 2005, just before prices reached their peak.
Last year's warning came after Stack noticed that his "Housing Bubble Bellwether Barometer" of homebuilder and mortgage stocks was up 80 percent in a year, a sign that investors once again had gotten too "exuberant."
He says it's too early to know if housing is in another bubble. "Unfortunately, bubbles are only recognized with 100 percent certainty in 20/20 hindsight," he said.
To be sure, economic strength should be playing to housing's benefit.
While rates for 30-year mortgages peaked at 4.94 percent in November, climbing a percentage point since the start of 2018, they've since fallen to 4.51 percent. And the unemployment rate is near a 50-year low.
But Stack says the damage is done.
"Even if mortgage rates level off or ease slightly in 2019, we are unlikely to see the psychology turnaround. Homebuyers have woken up to the fact that affordability is a major issue. Can they afford the home?"