Expert who predicted 2008 crash concludes we are heading for ANOTHER financial MELTDOWN
THE WORLD is on the cusp of another financial crisis due to another developing housing market bubble, according to a financial expert who predicted the worst financial crisis since the Great Depression.
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James Stack, 66, manages $1.3billion for people with a high net worth and predicted the 2008 housing crash back in 2005 just before prices reached their peak.
He says his “Housing Bubble Bellwether Barometer” is predicting another global crisis.
Mr Stack said: “It is 2005 all over again in terms of the valuation extreme, the psychological excess and the denial.
“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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As the housing market approaches its spring selling season, Mr Stack is in the minority in his wariness.
Price gains are slow but most analysts see no end in sight for the six-year-old recovery.
But Stack believes that while the market might gradually correct itself, history shows it is more like to “come down hard” with the next recession.
He said the pattern is a steep run-up in housing prices spurred by low interest rates.
The last downturn came when economic growth slowed after a series of rate increases and prompting loan defaults, according to Stack.
He said the US Federal Bank has projected three rate increases for this year and said it “raises the risk that today’s highly inflated housing market will again end badly”.
The financial prophet is watching homebuilder stocks closely because they are a leading indicator and they peaked in 2005, the year he predicted the crash.
It is also the year before home prices hit a top.
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Bullion is often used as a safe haven in times of economic stress. After flip-flopping for the last few years, spot gold has gained nearly 16 percent against the dollar year-to-date and even more against sterling which been hit by fears of a
Median home prices track long-term inflation as measured by the Consumer Price Index.
Last summer they were as high as 32 per cent above the measure.
Just before the housing bust in 2006, values were 35 per cent higher, according to data from the National Association of Realtors.
Half of the largest 50 metropolitan areas were overvalued relative to incomes in November, compared with 36 per cent two years earlier, according to data provider CoreLogic.
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Mr Stack said: “If we see mortgage rates at more historical levels, house prices can’t stay where they are.”
Monthly mortgage costs will rise by 12 per cent from a rate rise from four to five per cent for a 30-year loan.
For buyers, that is on top of the annual median price gain of seven per cent for existing homes in November, according to CoreLogic.
In comparison, disposable income increased just 1.9 per cent, according to the Bureau of Economic Analysis.
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Bill McBride ruins the Calculated Risk blog and also called the crash.
He does not think home prices are inflated at this time.
Lenders are acting more responsible than 2005 and the Wild West of real estate has not returned, he said.
Also, compared with the overbuilding that preceded the bust, today’s construction isn’t fast enough, he claims.
Mr McBride added: “Lending standards are still pretty good.”
Analyst Alex Barron said: “Ever since Trump took over, the mood has been incrementally positive.
“Now that tax reform went through, people will have more money in their pockets.”
