It is likely that one of the major bubbles of the last five to ten years is about to potentially collapse and implode. What am I talking about? Well, I'm talking about the American real estate market. Specifically, about the real estate market in a few cities in America, so maybe not everywhere. By the way, London real estate market already started to collapse. In fact, the London real estate market is right now imploding - which is a good thing. But take a look what's happening in US.
Take a look over here this chart is the case-shiller home price index and over here you see the home price index for example Los Angeles, San Francisco, Tampa Florida, New York and Detroit.
One of the ways you can tell if a market is becoming overvalued and very expensive, is to compare it to its previous prices - for example take a look at this chart and the peak you see on the left side, are the house prices in 2007.
We can see that San Francisco is far more overvalued and more expensive than say Los Angeles or some of the other cities. Compared to the rest of US cities, Los Angeles is obviously much higher priced.
But actually the most important chart we should be looking at is this one.
This is the chart of XHB or what is called "Home builders Index" or The home builders ETF. And just in the last few months there's been a bloodbath in XHB. It's just been falling.
It's broken below some key key market structures, which is a warning signal. Huge warning signal for the real estate market. XHB is a good predictor. It's actually a very good leading indicator of the real estate market. XHB is now going into a downward trend. Home builders are in a downward trend and
also home builders index is below its 200 weekly average which is also quite a warning signal.
The last time the Home builders index fell into such a massive downward trend - by the way was not surprising - back at 2007-2008. We only started really hearing about it in 2007 - 2008. But as you can see in the chart, trouble actually started way before 2007.
And some of you may know why this happened if you watched the film The Big Short - you probably know from the film that some of the greatest minds in the financial industry they started betting against the real estate market, against the real estate industry because they had information.
It is possible that the drop we're seeing in XHB is a warning signal. Is it potentially some kind of huge red flag for the US real estate market? Yes it could be. There is certainly something deeper going on that is causing this market here to implode and we're seeing the Home builders Index dropping significantly. Your thoughts?
