Gary Shilling Explains Why U.S. Housing Market is “Vulnerable” to Slowdown

Gary Shilling, the well-known president of A. Gary Shilling & Co., acknowledges the exuberance in the U.S. residential real estate market.

At the same time, he warns that housing market "cracks" are starting to appear.

Here's an excerpt from a June 10 Bloomberg article that Shilling wrote:

Single-family housing in the U.S. has been exuberant, but it's vulnerable and the bubble is starting to leak. ….

Numerous signs of a slowdown are already apparent. The number of months to exhaust the supply of existing homes on the market at current sales rates rose in each of the first four months of 2021. Lenders' willingness to issue mortgages is at its lowest level since 2014, according to the Mortgage Bankers Association, and those with less than pristine credit scores and without sizeable downpayments are finding it harder to obtain financing. In 2020, 70% of new mortgages were issued to borrowers with credit scores of at least 760, up from 61% in 2019, according to the Federal Reserve Bank of New York.

Building permits, a harbinger of future housing starts, are nowhere near where they need to be to slake demand. A Conference Board survey finds that plans to purchase houses over the next six months fell from 7.1% in April to 4.3% in May, the biggest drop since monthly numbers began in 1977. Mortgage applications for new purchases are down 18% year-to-date, according to the Mortgage Bankers Association.


History suggests that when bubbles begin to leak, small tears usually enlarge as more and more weakness in their fabric is revealed, ultimately leading to collapse. The current enthusiasm for single-family housing has reached such extremes that a deflation of the bubble seems likely--and may be commencing.

While on the subject of "bubbles," let's go back to the February Elliott Wave Theorist for this perspective:

The dot-com bubble, the housing bubble, and the current "everything bubble" are all just sub-bubbles within the larger uptrend since the 1980s, which is itself a larger uptrend since the 1930s, and so on.