This Money Manager's Housing Market Barometer Is 'Flashing Red'

The money manager who predicted the housing crash in 2005 says his personal barometer of homebuilder and mortgage company stocks, which jumped 80 percent in the past year, is "flashing red once again."

James Stack, who manages $1.3 billion for people with high net worths, says “It is 2005 all over again in terms of the valuation extreme, the psychological excess and the denial. Bloomberg News reports that Stack's "fireproof files of newspaper articles on bear markets date back to 1929," yet, "Stack is practically alone in his wariness ... As the housing market approaches its key spring selling season, price gains may slow, but most analysts see no end in sight for the six-year-old recovery."

Stack has a different perspective. While the market might gradually correct itself, history shows that it’s more likely to “come down hard” with the next recession, he said. He described the pattern as a steep run-up in housing prices spurred by low interest rates. The last downturn came about when economic growth slowed after a series of rate increases, exposing the “rot in the woodwork” and prompting loan defaults, Stack said. 

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