It is ironic that the creator of the Case Shiller Home Index is unable to clearly discern the message that his creation conveys. In interviews, Robert Shiller is often very circumspect when commenting on the future prospects of real estate based on the index that he and Karl Case released to the world in Dec. of 2006. He will frequently talk about “worrying signs” but is unwilling or unable to clearly articulate the high probability message the index he created is signaling.
It would be wrong to take the above observation of Shiller’s behavior as a criticism. I happen to think he is one of the good ones. Most Economists believe in the Efficient Market Hypothesis. That theory is on par with the ancient ritual of bloodletting as a cure for disease.
Dr. Shiller knows that the markets are not efficient or rational in the classical economic definition. He knows that irrational herd behavior is a big factor in what moves the markets. He has the courage to face that reality and for that he deserves credit. If only he would take the next step in that logical progression and embrace Elliott Wave (EW) analysis as the compass for the data map he has created.
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Since he cannot, I will. This analyst believes that the Case Shiller index charts viewed from several different angles and timeframes are all giving the same very high probability picture. Stated very plainly, home prices are in a bear market cycle. The fall in homes prices that began in April of 2006 was just the opening salvo of a larger battle that home prices are still yet to face.
The pattern of a bear market is perfectly predictable in its basic construction. Prices of any market will always move in three segments. There is an initial fall followed by a bounce or prolonged sideways movement and then a final descent. Please keep in mind that a fair amount of technical EW jargon and information is being left out to facilitate ease of reading.
Right now the market is finishing the upward price bounce that precedes the final move down that will end the housing bear market that began in 2006. An EW analysis of the pattern is screaming imminent drop.
The fall into April of 2009 was the first phase of the bear market. Everything since the low of April 2009 was a normal bear market rise. Price action from 2009 looks complete and a drop in home prices is at hand. According to the Case Shiller index, Prices have been falling since April of 2014. Now, the next decent in the index should yield a drop that is likely equal to the first drop that began in 2006. It is quite likely the drop will be even greater than the first. The index hitting 100 on the scale is a high probability scenario.
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