EWT on Housing BUbble

With so much talk about the real estate "bubble," can it really "burst"?
Category: Specific Markets

The volume of noise in the media about a possible housing bubble is growing enormously. Hardly a day passes without more stories about the excessiveness of the frothy real-estate market. Even my local papers (i.e. the Seattle Times, etc) are running front-page stories on the "bubble". Does this growing concensus of the existence of some sort of bubble (opinion differs on how deep it is) indicate that we are still quite a ways away from an actual decline in real-estate prices? I know that EWI has commented on how market peaks are often accompanied with some cautionary warnings in the media, but isn't the massive coverage of a housing "bubble" so excessive that it might actually be a contrary indicator?


Responder: Multi-Author
Date: 5/25/2005
This is exactly what we call the "uh-oh effect." There is plenty of talk about the bubble - in fact, people are starting to use this word routinely - but is anyone listening? No! Just yesterday (May 24), the housing data showed a new record for home sales. We described the "uh-oh effect" in the Jan. 2005 Elliott Wave Financial Forecast (EWFF): "One of the final manifestations of the Grand Supercycle peak was a phenomenon that The Elliott Wave Financial Forecast dubbed the “uh-oh effect” just five market days before the NASDAQ reached its all-time high in March 2000. The uh-oh effect was drawn from the following observation from At the Crest of the Tidal Wave: "There are times in history when the percentage of naive investors is so high that occasional warnings from professionals are irrelevant to net market psychology.... [It] is in fact normal behavior at the biggest tops of all. "Over the course of 2004, EWFF has charted the shift of the epicenter of the great peak to the real estate sector, so don’t mistake a recent flurry of warnings about a housing bubble as a contrary sign of strength. The papers are full of references to a potential retreat in home values... So, it’s a bubble, but it’s a nice bubble that home owners don’t have to protect themselves against. This same complacency surrounded warnings about high stock prices in March 2000 when EWFF reported, “Even if investors have concerns as a result of hearing an occasional warning, they do not act on them.” Financial bubbles by definition always pop, and one of history’s great tip-offs to the fact that they are ready to do so comes when participants see the bubble for what it is and decide not to do anything about it. Real estate is there now, and that is especially relevant because the bursting of the real estate market is the last straw..." (Elliott Wave Financial Forecast (EWFF) is part of the Financial Forecast Service.)