U.S. Real Estate Market Still In Extreme Position

There has been so much discussion about US real estate as an overvalued asset class. I’ll keep this simple. There is an interesting article on Contrary Investor that shows how out of hand things have become. (The site requires you to sign up as a subscriber but at no cost.)

The argument given is that real estate is a good leading indicator of the national economy in general. Nothing new there but it’s the charts that give a good indication of the extreme situation investors need to be aware of. Here are some charts from the article:

The conclusion you can draw from the above is of a hard landing. Same with this chart:

According to the writer, “we're looking at the number of US homes for sale multiplied by the median US home price as of now. Without sounding melodramatic, price and volume is telling us one large and very important story here. We've never seen anything like this.”

What I have put above hardly comes close to analysis so I strongly suggest reading this report and do some further digging. But when you look at the ETF space, you have further evidence of the same. Take a look at the barcharts.com’s ETF site. Here’s the list of top ten ETFs sorted by YTD returns:

Numbers 6, 7 and 9 (ICF, RWR, VNQ) show about 18% to 19% returns YTD. If you’ve been holding them, you’re looking good. The 3-year charts look nice with a few downward bumps along the way.

The only question now is if there is risk of a more substantial drawdown (high Fed uncertainty is making this a very interesting time) and if so, whether shorting should be considered.