7 June 2005
A Fractal Top for the Real Estate Bubble
In the next 25 years, an average of one million US workers will retire each
year - nearly doubling the number of social security recipients over 65. To
just maintain steady state employment, 90,000 jobs must be created each
month for the next 25 years. Many of these newly created jobs will be lower
paying service type of jobs, many involved in taking care of the aging
The housing industry, and to a lesser extent, federal borrowing and deficit
spending, has provided the majority of debt and reciprocal credit growth
horsepower for the last four years to drive the expansion of the US GDP. The
rate of new personal, federal, and corporate debt creation and future debt
servicing obligation has been at a historical peacetime zenith. Continuation
of the norm and the housing bubble is ultimately limited by the demand of
new entry level wage earners buying into the dreamland housing market. Even
with below inflation rate interest rates and no principle payment mortgages,
acquisition of excessively priced homes are ultimately limited by the
monthly wages received by these new earners. Their salaries are currently
being eaten alive by higher energy prices, consumer non-durable good prices,
and local property taxes - all of which have been ratcheted up the ultra low
interest rates. These consumer price increases serve as the controlling
feedback mechanism on unlimited home ownership growth and ultimately are a
primary determinant of composite equity fractal evolution.
As the housing market reaches its saturation asymptote and falters in a
plateau state of overproduction and overcapacity, the relatively high paying
financial, construction, and real estate jobs that have proliferated in the
last few years will both suddenly and dramatically decline.
Just like the equity markets in 2000 had the bubble concentrated primarily
in the tech sector, i.e., the NASDAQ, the housing bubble is likewise
primarily concentrated in the sunbelt and coastal areas. It is,
unequivocally, a major bubble, nevertheless, with 5-10 trillion dollars of
overvaluation. And just like folks who looked beyond the peak of the NASDAQ
bubble in 2000 to NASDAQ 10-15,000, people are looking beyond the peak of
the current housing bubble to a future average US housing price of something
more, perhaps 300-400,000. With current US wages constrained by global wage
earner salaries and US employers' requirements for domestic profitability,
the mirage target price range of 300-400,000 can be tossed in the circular
file along with the earlier expectations of DOW 30,000.
Five years after the NASDAQ peak the tech bubble's valuation is 60 percent
less than its 2000 peak. What would happen to the US GDP if the real estate
market in five years is 60 percent less than its current value?
Given the implications of the housing bubble fractal analysis of the
homebuilding, home financing, and REIT equity entities are well worthwhile.
Many of these entities, e.g., KBH,CFC,RMS, have increased 300-800 percent in
the last 5 years mirroring the gains by the NASDAQ from 1995-2000.
Fractally the real estate related equity entities are at crucial point both
long term and short term. Macro economically this possible turning point
would correlate to the disappointing decrease in US May job growth less than
the replacement rate of 90,000 a month needed to sustain at a minimum a
steady state of US employment. Is May's employment growth the beginning of a
recessionary trend? Any multimonthly decrease in housing prices could
implode the manufacturing less (save homebuilding) economy which has been
left completely dependent on continuous debt expansion via continuous
housing appreciation with the secondary home equity loans for supplemental
The ideal long term growth and decay fractals for RMS beginning in October
1998 on a monthly bases are 14-15/35-37/28-30/and 6 to 4 of 21 to 22 with an
ideal low in September to December 2006.
On a daily basis, as of Monday 6 June 2005 the fractal count for RMS is
18/44/45 or x/2.5x/2.5x. Today's high did not exceed 3 June's high.
Fractally this would be a perfect top for RMS and the beginning of the end.
This REIT high probability fractal top matches a 103/254/206 x/2.5x/2x daily
primary fractal growth top for the Wilshire 5000.
(As a postscript, during the early trading today June 7, 2005, RMS on a
minutely basis exhaustion gapped its way to a new high and retreated to a
lower high. It will be interesting to see if this minutely exhaustion gap
serves to be a reliable terminal apogee marker for this 2005 bubble equity
and economy expansion driver, equivalent to the NASQAQ in 2000.)