The Housing Bubble

A report from the Wall Street Journal. “Robin Manthie and her husband have been looking for their first home in Minneapolis since last May. They thought this spring would bring a flood of inventory, making their search easier. But by most measures it is getting tougher. Ms. Manthie, a 33-year-old consultant, is 41 weeks pregnant, but she and her husband are still trudging to open houses most weekends in search of a four-bedroom home in the $700,000 range — up from $400,000 when they started. ‘It’s shocking. The house [two doors down from] my mother-in-law went in three hours,’ she said.”

The Yakima Herald in Washington. “When Claire Zamora arrived to the Yakima Valley in 2011 to start her job as a speech language pathologist, she didn’t expect to stay long. Six year’s later, she lives in Yakima with her husband and their 11-month-old son. So several months ago, Zamora, 31, and her husband started the home-buying process. The bank approved a loan of up to $200,000 but Zamora hoped to find a home closer to the lower end of their price range - $150,000.”

“Reality hit when she started searching online. The only homes she could find in that price range weren’t in the West Yakima or West Valley neighborhoods she desired. Most homes in that under $150,000 price range were east of 16th Avenue. Zamora knew that just a few years ago, homes cost much less and were within that $150,000 mark - including those in West Yakima neighborhoods. ‘I’m kicking myself,’ she said about not deciding to buy sooner.”

“That market is now limited to buyers willing and able to pay new home prices that are pushing $300,000 or more. Home builders, both locally and nationally, are building more lucrative higher-end custom homes and homes in high-end subdivisions rather than the median-priced residences buyers are desperately searching for.”

“Those in the building industry say rising building costs, which include everything from securing permits to buying construction materials, is driving this move toward higher-end homes. ‘The tug of war between supply and demand has led to bidding wars for scare resources (labor and materials) and significant increases in building costs,’ said Bob Denk, associate vice president of the forecasting and analysis division of the National Association of Home Builders. ‘Unprofitable projects are cancelled, and only the high end of the market gets served.’”

From NBC 2 in Florida. “Fort Myers City Council will vote on renewing their contract with a group putting an end to zombie homes. Those are homes foreclosed on by their owners and nearly abandoned by their lenders. Since 2010, the city has partnered with the group now known as Pro Champs, which designed a database of these homes to make sure they city never loses track.”

“Jay Parson is one of many neighbors living next door to one of these eyesores and said he’s called on the city to take action for years. ‘If they aren’t going to do something with it, tear it down. It’s not going to get better by itself,’ Parson said. He said it’s disappointing to see properties left for dead in communities where property value is fragile. ‘A lot of people like me don’t have money to put into the bank to draw interest, so you need to draw interest in your house,’ he said.”

“Code enforcement said they have more than 130 properties at the point where they need to be torn down. The cost of demolition has gone up, but their funding has actually gone down, so they’re in search of grants to take care of all these homes at once. It could take 10 years demolish all the homes.”

From Raul Ilargi Meijer. “We are witnessing the demise of the world’s two largest economic power blocks, the US and EU. Given deteriorating economic conditions on both sides of the Atlantic, which have been playing out for many years but were so far largely kept hidden from view by unprecedented issuance of debt, the demise should come as no surprise.”

“The debt levels are not just unprecedented, they would until recently have been unimaginable. When the conditions for today’s debt orgasm were first created in the second half of the 20th century, people had yet to wrap their minds around the opportunities and possibilities that were coming on offer. Once they did, they ran with it like so many lemmings.”

“As we’ve also seen, we’ve been plunging ourselves into ever higher debt levels to create the illusion of growth. Now, money (debt) is created not by governments, as many people still think, but by -private- banks. Banks therefore need people to borrow. What people borrow most money for is housing. When they sign up for a mortgage, the bank creates a large amount of money out of nothing.”

“So if the bank gets itself into trouble, for instance because they lose money speculating, or because people can’t pay their mortgages anymore that they never could afford in the first place, the only way out for that bank, other than bailouts, is to sign more people up for mortgages -or car loans-, preferably bigger ones all the time.”

“What we have invented to keep big banks afloat for a while longer is ultra low interest rates, NIRP, ZIRP etc. They create the illusion of not only growth, but also of wealth. They make people think a home they couldn’t have dreamt of buying not long ago now fits in their ‘budget’. That is how we get them to sign up for ever bigger mortgages. And those in turn keep our banks from falling over.”

“Record low interest rates have become the only way that private banks can create new money, and stay alive (because at higher rates hardly anybody can afford a mortgage). It’s of course not just the banks that are kept alive, it’s the entire economy. Without the ZIRP rates, the mortgages they lure people into, and the housing bubbles this creates, the amount of money circulating in our economies would shrink so much and so fast the whole shebang would fall to bits.”

“That’s right: the survival of our economies today depends one on one on the existence of housing bubbles. No bubble means no money creation means no functioning economy.”

“It’s perhaps ironic that the US doesn’t appear to be either first or most at risk this time around. There are plenty other housing markets today with what at least look to be much bigger bubbles. The potential consequences of such -inevitable- developments are difficult to overestimate. Because, as I said, the various banking systems and indeed entire economies depend on these bubbles.”

“The aftermath will be chaotic and it’s little use to try and predict it too finely, but it’ll be ‘interesting’ to see what happens to the banks in all these countries where bubbles have been engineered, once prices start dropping. It’s not a healthy thing for an economy to depend on blowing bubbles. It’s also not healthy to depend on private banks for the creation of a society’s money. It’s unhealthy, unnecessary and unethical. We’re about to see why.”