A Big Bargain in the Land of La La

Just down the road from Beverly Hills, Calif. is the enclave of Bel Air, which is just about as posh.

Even though a major recession has yet to hit, a swath of Bel Air real estate is already being offered at a big discount, which may be indicative of what’s ahead.

Here’s a Jan. 24 Bloomberg headline and subheadline:

Land in Bel-Air Hits Auction Block at 70% Discount. Bids Start at $39 Million.

It’s a ‘last shot’ to find a buyer for property that was listed in 2013 at $125 million.

If Elliott Wave International’s analysis of the economy is correct, there will be many more bargains in real estate – not only in the luxury sector or California, but across the country.

Here’s a quote from Robert Prechter’s Last Chance to Conquer the Crash:

The worst thing about real estate is its lack of liquidity during a bear market. At least in the stock market, when your shares are down 60% and you realize you’ve made a horrendous mistake, you can swiftly get out (unless you run a mutual fund, pension fund, insurance company or other institution with millions of shares, in which case, you’re stuck). With real estate, you can’t pick up the phone and sell. You need to find a buyer for your house in order to sell it. In a depression, buyers just go away. Mom and Pop move in with the kids, or the kids move in with Mom and Pop. People start living in their offices or moving their offices into their living quarters. Businesses close down. In time, there is a massive glut of real estate.

In the initial stages of a depression, sellers remain under an illusion about what their property is worth. They keep a high list price on their house, reflecting what it was worth at the peak. This stubbornness leads to a drop in sales volume. At some point, a few owners cave in and sell at lower prices. Then others are forced to drop their prices, too. What is the potential buyer’s psychology at that point? “Well, gee, property prices have been coming down. Why should I rush? I’ll wait till they come down further.” The further they come down, the more the buyer wants to wait.

… At the bottom, buy the home, office building or business facility of your dreams for ten cents or less per dollar of its peak value.

U.S. Housing Market: “Worst Contraction Since 2006”

You probably recall the bursting of the U.S. housing bubble which occurred 16 years ago.

U.S. housing prices had topped in 2006 and that was followed by the subprime mortgage “meltdown” which shook the financial world to its core.

Here in 2022, there’s this headline (Markets Insider, June 10):

The US housing market is seeing its worst contraction since 2006 as mortgage applications crumble, says Freddie Mac economist

The Elliott Wave Financial Forecast pointed out reminders of the prior housing boom-and-bust back in April in a section titled “A True Fact: The Spirit of ’06 Is Thriving.”

Here’s a chart and commentary from that section:

The latest housing mania carries a “last chance to get in” vibe that even the boom of the mid-2000s failed to muster. Many experts say the price gains of recent months are just a beginning. Zillow’s latest housing price forecast is for year-over-year home price growth to increase to 22% by May. A Facebook post from a local real estate broker highlights a CNN Business story that the broker first posted in 2021. The story, about a house that drew 76 all-cash offers, is headlined “The Housing Madness Shows No Sign of Slowing.” Says the bullish broker, “I warned you then. Is it slowing this year? All arrows point to no.” We disagree. In fact, many of the arrows that matter most are now pointing down. In addition to the … over-the top bullish sentiment, there is now a clear trend reversal in the S&P Supercomposite Homebuilding Index, shown above. In September 2005, the Elliott Wave Financial Forecast pointed to a similar reversal in the same index and stated that home prices would eventually follow. Prices peaked in August 2006.

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