Now's the Time to Sell Your House

 | Jul 08, 2017 | 12:00 PM EDT
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Here's how the conversation might be going in your head if you're trying to rationalize buying houses to flip, or even trying to squeeze the last dollar out of your house's appreciation before selling it to fund your retirement:

"Hey, it's a hot market, right? Supply is low, so someone will want this once I fix it up. The rental market is tight, too. We only want to get back to the highs of 2005 before we sell." Or even more emotional justifications like, "I'm afraid the price might rise after I sell and I'll feel bad."

These are manifestations of our human need to be right, gratify our ego, and look significant in the eyes of others. Yet what is really important is to wonder what the markets are telling you about your potential decision, and whether you can survive the consequences of it. While most folks use the "No one told me the market was topping, or I would have sold" excuse, in fact, the market sends those messages to anyone willing to objectively examine the details.

iShares U.S. Home Construction ETF (ITB) -- Monthly

Above is the monthly bar chart of iShares U.S. Home Construction ETF (ITB) , which tracks a group of homebuilders. The chart opened right at the peak of the housing bubble and you can see -- painfully -- how housing did, crashing by 84%. Few saw the 2006 window close, and most Americans suffered that great slide, wishing they'd had some insight. Well, it's insight time.

So let's see what our DSE (decision support engine) has found in the objective, empirical data indicating whether buying or selling actions are optimal now. Members of our DSE Alerts service received this information earlier this week (click here to get a free 10-day trial). 

First, DSE's pattern recognition algorithms have identified the decline off the all-time high as a five-wave impulsive pattern, which is labeled (A) at the lower left. Historically, this informs that the prior trend (the housing boom into the 2005-06 peak) is over. Just because the crash took 84% off the ITB doesn't mean the final low is in place. Historically, that would have required that slide to be only a three-wave corrective pattern. So the rising prices since wave (A) bottomed are only a relief rally to offset that oversold extreme. Once complete, the rise will roll over and two targets can be calculated.

The highest-probability target is for a retest, or brake, of the big low. DSE shows this as wave (C) in the lower right corner; around $6 somewhere near the year 2020. The second-highest-probability target is the $16 +/-2 zone. Both of the two highest-probability scenarios, historically speaking, point to an imminent peak, and decline for three +/-1 years.

Next, DSE is warning that the stochastics indicator (lower pane in chart) has returned to extreme overbought conditions, where buying actions are never optimal. In fact, selling actions are! It should take at least 13 to 21 months to get these stochastics off this overbought extreme, and back to at least the neutral 50% zone. However, more likely, this overbought extreme will move all the way to an oversold extreme, which should take 21 to 34 months.

Combining the pattern implications with these timing forecasts, the only action that can be objectively derived at the current housing market fiesta is to be selling! This is especially true for those readers considering selling in the coming six months to six years. Just like the past 10 years haven't returned price levels to the highs of the previous peak, nor should the coming 10 years. Therefore, you are unlikely to sell your home in the next 10 years for what you can currently sell it for now. If you live in a particularly "hot" area, this message is even more magnified.

Of course, this ETF of construction companies is not home pricing itself, but you can guess the correlation, right? It's +1.0, which means as goes ITB, so goes home pricing. If only the higher green zone is reached, that will be a 55% decline. That means the $1 million house you could gracefully exit from here will be hard to sell for $500,000. Why? Because real estate is not as liquid as stock investing. You have to maintain it, stage it, pay a realtor to sell it, etc. So consider the gift of "rising markets float all boats," and if you believe you will need to sell in the coming decade, sell now.

Another great reason to sell now is to lock in the profits that have been bestowed upon you. Then, imagine the houses around you that you would like to buy, and see which you'll be able to afford if they are half of today's price. Interesting, huh?

For updates on this analysis, as well as other trading opportunities, try Ken Goldberg's DSE Alerts service for free for a couple of weeks, or contact him at support@dsetrading.

Editor's Pick: This article was originally published on July 8, 2017.  

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