Did Housing ‘Recover’ Too Much?
Readers suggested topic on where we are. “When will this echo-bubble hit its peak, or has it already done so? Someone this past week posted a comment of ‘I’m calling top.’ But it made me wonder: are we really close to the top? Past the top? Still years from the top?”
A reply, “We should include a discussion on how people are faring with higher food prices, high gas prices and high utilities. The CNY area is approximately 427K and approximately 25 percent of the population is having a tough time paying their utility bills. Yes I personally know guys in their fifties retiring from this company with over a million dollar retirement package. In Syracuse people working for this utility have a saying which goes something like ‘there are two kinds of people ones who work for National Grid and the others who want to work for national Grid.’ So our house prices are high, food prices are high, gas is high, utilities are high. But the new LYING Fed doesn’t see inflation.”
“Our property taxes are astronomically HIGH. A house now selling for 400K will cost you 24K and yes 24K in taxes. This is not a typo.”
I suggested this link, saying, ‘Wiped itself out, huh? It recovered too much?’ “The two-year-old U.S. housing recovery is faltering. Bullish forecasts in early 2014 from MBA, Fannie Mae and Freddie Mac have been sideswiped by rising home prices and an economy that isn’t producing higher paying jobs. The share of Americans who said they planned to buy a home in the next six months plunged to 4.9 percent last month from 7.4 percent at the end of 2013, the highest in records going back to 1964, according to the Conference Board, a research firm in New York.”
“‘The big housing rally wiped itself out because prices increased too quickly for buyers to keep up,” said Richard Hastings, a consumer strategist at Global Hunter Securities LLC, who predicted the slowdown eight months ago. ‘The pool of eligible new buyers is collapsing’ because of stagnant incomes and lack of credit, he said.”
From The Paper. “When it comes to buying real estate in The Woodlands, your money is getting eaten up by location, location, location. Real estate inventories in The Woodlands are at historic lows—with less than the months of inventory for houses priced at $600,000 or below, according to the Houston Association of Realtors. In the past three years, median home prices in The Woodlands have gone up $100,000. This environment is anticipated to stay sizzling through 2017, which merits caution for all but long-term investors.”
“‘Long story short, if you buy at the top of a market like this, it’s going to be an expensive mortgage for a long time,’ says Paul Carroll of Efficient Wealth Management in The Woodlands, Tex. ‘This is a very interesting bubble, which is a function of the good fortunes of the energy industry. With inflation running at just 1.5 percent, the true cost of that money over the lifetime of home ownership will be higher than expected.’”
“Carroll cautions that unless a buyer is sure they will own their house at least 7 to 10 years, renting may be a better option than home ownership. ‘Usually you think of renting as throwing away money, but if a rental costs $2,000 a month vs. $2,400 a month plus the full cost of home ownership, it may be a better investment,’ Carroll says. Once you factor in repairs, home insurance, flood insurance and more, renting may be the safer bet.”
“Americans think of real estate as a life-long investment in which housing values faithfully march up over time. Keep in mind, however, that appreciation is not guaranteed to continue the steep incline of the past several years. ‘Real estate is a devilish investment in a low-inflation environment,’ Carroll says.”
From Bloomberg. “Vera Johnson from Seattle is barely making do, let alone saving for retirement. The 45-year-old almost lost her home to foreclosure in 2010 after the housing-market collapse in the worst recession since World War II. She embodies the financial challenges facing America’s Generation X, those born between the mid-1960s and 1980, which lags behind other generations in building assets.”
“Good timing is not the age group’s forte. Many took out mortgages just before prices plunged, making them the most disadvantaged by the housing crisis, while the 2008 stock-market slump dealt them a further setback. Only one-third of Generation X households had more wealth than their parents held at the same age, even though most earn more, The Pew Charitable Trusts found.”
“‘I try to remain in the present moment and not live in fear of the future,’ said Johnson, who has neither retirement savings nor a college fund for her two children. ‘My property is underwater, the properties around me are underwater, I’m not building equity in my home.’”
“For Johnson, a mother of a 17-year-old daughter and a 12-year-old son, she’s more concerned about day-to-day living than about preparing for retirement. Her home-loan modification ‘is a Band-Aid for a hemorrhage’ as her business continues to struggle, she said. ‘It’ll seem like it’s getting better, and then it gets worse.’”
The Guardian. “Americans are experiencing one kind of economy – high unemployment, expensive housing, rocketing food prices and costly medical care – but the US Federal Reserve is seeing another kind of economy: the one in which you shouldn’t believe your own eyes.”
“It all comes down to inflation: the measure of rising prices that we all experience in our daily lives. And inflation is rising – fast, much faster than the Fed anticipates. Meat prices are rocketing at plus-7.7% in 2014, and dairy is up 4.2%, a considerable hit to family shopping budgets. Shelter – either mortgages or rent costs – are rising at about 3%, while car insurance is up 5%, and tuition costs and public transportation are both up more than 3%.”
“This means consumers are surrounded by rising prices on all sides – paying higher bills, paying more money at the market, paying more just to get to work. At the same time we’re shelling out more for these necessities, our incomes are stagnant. No more money is coming in. Yet the Fed, which just wrapped a two-day meeting to diagnose the economy, is dismissing these real-world costs as a trick of the charts – a mere math problem rather than a real snapshot of the challenges facing Americans. And its new leader, Janet Yellen, has now officially risked her reputation on a potential misreading of the concerns of regular people.”
“Take this exchange: A reporter asked Federal Reserve chair Janet Yellen on Wednesday whether the central bank is taking an overly rosy view and is ‘behind the curve’ on inflation. Yellen denied that the patterns in higher prices actually exist: ‘The data we’re seeing is noisy … inflation is rising in line with committee’s expectations.’”
“Translation: Nothing to see here, folks. Move along. This blinkered view is alarming. The Fed’s chirpy insistence that ‘economic conditions are improving’ fails to reflect the experience of Americans who are finding less money in their already-squeezed budgets.”
“Even Yellen seemed slightly unconvinced by the Fed’s insistence that the economy is improving. She rattled off a list of reasons why the economy should be growing instead of shrinking (which is what it’s doing): it’s allegedly easier to get loans, and households “are becoming more comfortable with their debt levels” – and with their rising home prices, rising stock prices and an improving global economy.”
“The important common bond among all those factors: the represent the Fed of magical thinking. They’re all dependent on people believing that things really aren’t so bad. Six years into a weak recovery that’s turning darker, that’s not enough.”
‘Financial repression will remain the law of the land for the foreseeable future, Yellen confirmed once again. And the just announced spurt in inflation, someone asked her? Well, inflation data is ‘noisy,’ she said, so it’s going to be ignored for a while in order to bring down real wages even further; that’s good for the profitability of the Fed’s elite club; every corporation wants cheap labor. Though it has a nefarious impact on the overall economy.’
‘The Fed also did its favorite thing, which it does every time it meets, and without which it apparently cannot even meet: it lowered the growth forecast for quarters that are moving closer to reality. So now the range is 2.1% to 2.3% for 2014. In 2012, so nearly $2 trillion of QE ago, the Fed still thought that escape velocity would propel the economy forward by nearly 4% this year.’
‘And the VIX volatility index was further lulled to sleep. The only other time over the last few decades it was this low was in January 2007, as the housing market was already toppling – ‘plateauing,’ it was called then – and all heck was already breaking lose beneath the surface at banks and other worthy members of the Fed’s elite soon-to-be-bailed-out Wall Street club. This extremely low level means that the market isn’t prepared for a major downward move, which can create a hair-raising environment when it does come. The phenomenon is called complacency.’
‘Central bankers in the US and around the world have been fretting for months about complacency. Not Yellen. It barely registered on her scale.’
‘And so we have a series of geniuses: Greenspan who said that the very concept of a national housing bubble in the US was impossible just as the national housing bubble was inflating to monstrous proportions; Bernanke who said that the consequences of sub-prime lending were ‘contained’ just as the consequences of subprime lending were eating up the banks from the inside out; and Yellen who now told us that complacency is nothing to worry about.’
‘So we sally deeper into the Yellen era, which is the same as the Bernanke era, in that the Fed – and other central banks, for that matter – is the only thing worth looking at. Central banks rule. Practically nothing else matters. Metrics and ratios are just for decoration. Markets as a means of price discovery no longer exist.’
‘And if things ever get out of hand, well…. ‘We have a number of tools,’ Yellen reminded us. The tools in Bernanke’s toolbox, the ones he has been using so delicately and with such great success, the tools that already brought us financial repression, asset bubbles and busts, lower real wages, and a whole lot of financial craziness.’
” … the Fed still thought that escape velocity would propel the economy forward by nearly 4% this year.”
Velocity? Did someone say velocity?
Go here for an update on some interesting velocity:
http://research.stlouisfed.org/fred2/series/M2V
Uh, notice on the chart those shaded vertical bars that coincide with the dropping off of that black line. These shaded vertical bars denote recessions.
So far this latest dropping of that black line has not resulted in a shaded bar so I guess that means we must not currently be in a recession.
So far this latest dropping of that black line has not resulted in a shaded bar so I guess that means we must not currently be in a recession.
Agreed. That drop-off in velocity is nothing short of stunning!
There have been some small drops in the past, particularly early in post-recession periods. But nothing like the past 5yrs.
Good thing we’re not in a recession, eh??
This chart shows exactly what happens when the wealth shoots to the top. The velocity of money decreases to a trickle, as it is largely parked in the coffers of the elites, rather than circulated throughout the economy. Trickle down my @ss.
This one looks more like a stair-step depression, beginning in Q2.2000 and continuing right up until the present, with a couple of dead cat bounces on the way down into the bottom of the crater.
Good find, Combo!
I think this is because of where all of the money is going: to the top. The rich aren’t going to spend all of that money into the economy, much less the domestic economy. They will hoard it, or speculate with it…and the favorite flavor of speculation these past many years is in assets that already exist; thus, no benefit to GDP.
I think this is because of where all of the money is going: to the top.
My conclusion is slightly different: the real state of the bottom has been revealed by the reduction in borrowing; they spend less because they can borrow less.
In other words, the hollowing-out of the middle class over the last 30yrs is now revealed, after the waters of the debt-flood have receded.
If it were just due to the money flowing to the top, the chart would not have changed so dramatically in such a short time; structural change takes longer than that to manifest.
If money velocity is tied to borrowing, then why was the money velocity so much faster in the late 90’s than in the mid-2000’s? Looks like jobs are the deciding factor. There aren’t enough strawberry pickers and cash-out refi dollars to make up for all those computer based and energy-intensive jobs going overseas.
Whoever is in charge of government should be slapping tariffs on “services” instead of giving them most-favored nation status. Mo Credik is paltry in comparison.
PIC, I think we’re saying the same thing.
The money going to the top is coming mostly from the middle class, and also from the bottom (but to a lesser extent, since they were already broke).
It seems like the entire 21st century has been one of stagflation and yet you almost never hear that word.
Exatly!
Whoops! Exactly.
It seems like the entire 21st century has been one of stagflation and yet you almost never hear that word.
I fully expected stagflation after the post-Y2K tech bubble bust—but was apparently off base.
The long sleeping bond vigilantes, perhaps?
Treasury 30-Year Bonds Drop as Investors Fight Fed
By Daniel Kruger Jun 21, 2014 12:00 AM ET
Treasury 30-year bonds dropped as investors bet on faster inflation even as Federal Reserve Chair Janet Yellen dismissed signs of rising consumer prices.
“The market is struggling with, will they overshoot in terms of easy money and what are the implications for longer-term inflation?” Margaret Kerins, the Chicago-based head of fixed-income strategy at Bank of Montreal, one of 22 primary dealer that trade with the central bank. “There’s uncertainty there that justifies a risk premium.”
http://www.bloomberg.com/news/2014-06-21/treasury-30-year-bonds-drop-as-investors-fight-fed.html
It’s so cute the Fed thinks inflation will spark employment. Inflation reduces spending power of the public, forcing them to draw down their spending, not increase it. If inflation got so bad that people are trying to get out of the currency, then that’s another problem entirely - vast swathes of politicians would lose their jobs and quite possibly, the current order the Fed is trying to preserve would be wiped away.
Encourage debt? Sure. One trick ponies. It’s all they know.
Interestingly, all of the “God’s work” they’re doing coincidentally enriches them and their cronies.
‘And the VIX volatility index was further lulled to sleep. The only other time over the last few decades it was this low was in January 2007, as the housing market was already toppling – ‘plateauing,’ it was called then – and all heck was already breaking lose beneath the surface at banks and other worthy members of the Fed’s elite soon-to-be-bailed-out Wall Street club. This extremely low level means that the market isn’t prepared for a major downward move, which can create a hair-raising environment when it does come. The phenomenon is called complacency.’
I had little idea how far the stock market was destined to CRATER back in early 2007, when the market seemed to have achieved a permanently high plateau.
I had little idea how far the stock market was destined to CRATER back in early 2007, when the market seemed to have achieved a permanently high plateau.
I had every expectation that the market would crater far MORE back in 2007/2008; the historical precedents we had available at the time were far larger than what occurred.
That said, though, I have been getting the urge to start going short again… Hmmmm.
Remember the definition of a housing recovery is falling housing prices to dramatically lower and more affordable levels thus generating demand.
Given the fact housing demand has collapsed to 19 year lows, housing has a long way to fall to meet the criteria of the definition of a housing recovery.
‘The big housing rally wiped itself out because prices increased too quickly for buyers to keep up…’The pool of eligible new buyers is collapsing’ because of stagnant incomes and lack of credit.’
Here’s where the Fed has really screwed the pooch. These rising house prices were THE method for increasing incomes. That’s it folks, no bigger plan than that. And now it’s failed. What do we have? An ongoing stagnant economy and stupid house prices. Oh, and throw in a stock and bond bubble too.
‘The Fed also did its favorite thing, which it does every time it meets, and without which it apparently cannot even meet: it lowered the growth forecast for quarters that are moving closer to reality. So now the range is 2.1% to 2.3% for 2014. In 2012, so nearly $2 trillion of QE ago, the Fed still thought that escape velocity would propel the economy forward by nearly 4% this year’
How I long for those robust days of 4% growth. 4% isn’t diddly! But don’t complain. Commute because you can’t afford to live near a good job. Just sit back and pay for that gasoline with a second job.
Let’s just lay it out; it has failed because it never had a chance of succeeding. House prices can’t make us all rich. They can’t give us sustainable jobs. And it is as I have long suggested; these people in the central banks are fools. And they are calling all the shots. So buckle up.
“So buckle up.”
Understatement. The howling and gnashing of teeth when housing hits bottom is going to be earsplitting.
these people in the central banks are fools.
They are only fools if you believe that their goal is the dual-mandate in the statutes; if you assume instead that their goal is to ensure the profitability of the banks, then they look rather like geniuses.
In the long run, a crappy economy isn’t good for banks.
‘Consumers and the Economy, Part II: Household Debt and the Weak U.S. Recovery’
as long as they say the economy is growing they can justify giving themselves raises.
http://news.yahoo.com/bulgarian-bank-hit-run-put-under-supervision-130051896–finance.html;_ylt=AwrSyCNHI6ZTGCYA2DHQtDMD
Bank runs aren’t good for banks, either. Bulgaria’s forth largest bank saw its customers yank their deposits…but our wise and benevolent EU and Fed would warn us if anything was amiss, right?
In the long run, a crappy economy isn’t good for banks.
They’ve managed to have surprisingly good earnings thus far, during the worst downturn in several decades (ignoring the first couple of years of the crash, of course)…
In the long run, though, I believe you’re right.
In the long run, they are destined to enjoy heap helpings of blame, as their policies are failing.
If the millennials on my street are anything to judge by, most are emotionally stunted 30-year-old boys, raised by women and lacking any concept of manly drive or ambition, living in their mommy’s basement and working sh*t jobs so they can indulge in their only passions, Internet porn and World of Warcraft. And these losers, who in earlier times would be starting families and pouring their productive energies into their careers, are going to be buying homes how?
And don’t even get be started on the University of Phoenix no-hopers who come out laden with massive debts and degrees that qualify them to be barristas at best. Something like a third of last years graduating university students are back living at home with mom & dad because they don’t earn enough to make it on their own and the student loan bubble now exceeds $1 trillion dollars. So home ownership for this lost generation will remain a bleak prospect, especially since the Fed cannot and will not allow deflation to occur.
I would feel sorry for the millennials, seeing how badly they’ve been screwed over by the boomers, but then again most of them were Obama Zombies not once but twice, so they are getting exactly what they deserve. But some day, if they ever look up from their iCrap and develop a capacity for critical thinking that wasn’t leached out of them by our pubic school system, they are going to be very, very pissed off.
“…their only passions, Internet porn and World of Warcraft.”
If my kids turn out that way, I may shoot myself.
University of Phoenix no-hopers
It is criminal that this scam is allowed.
RKH, you’re blinders are on to tight. It’s not about Obama, or Bush, or any other “leader” we’re supposedly electing. The choices have been made long before we get to the polls. Stop falling for the left vs. right nonsense and start using those critical thinking skills that you’re advocating for. We are ALL being fleeced by the elite, and the corrupt Two-Party system is a ploy designed to keep us fighting amongst each other while the 1%ers make off with all the loot that was earned by the workers who are now faced with paying all of those debts with the dwindling income from their piss-poor jobs that they’re supposed to be “happy” to have.
It is called capitalism, movers and shakers of the early 20th century were not nice folks either,that is why well off or rich look at things20 years in advance. Presidents really have little say, they are beholding to lobbyist, who are beholding to self interest corporations,who are beholding to the founders of the company.
Then the President if they are elected by a political machine like Chicago has then they have to answer also to them.
If Americans still don’t get it then let them think their vote is for the guy who during the campaign promised them the moon, they all do that.
The moon appears to sink everyday somwhere in the world, same for politicians, their promises sink along with it.
they’ve been screwed over by the boomers, but then again most of them were Obama Zombies
Ah yes, the old-guard conservative who wants so desperately to blame things on Obama. New flash: They voted for Obama BECAUSE they were screwed over by the Boomers. I.E. boomers did the screwing first, starting with Jack Welch, continuing with Carly Fioria, and later by lloyd and Angelo.
And I coulda done without the “raised by women” crap. If these Millenials were raised by boomer mothers, then pray tell where were their Boomer fathers all this time? Not being terribly driven or ambitious?
Nice zinger there, oxide!
I worked with a guy (loser) who had two young kids but his life consisted mainly of getting high and playing those games. He was up until the wee hours and would show up to work a zombified emotional powderkeg. He got fired.
“So buckle up”
My thoughts exactly. The worst thing about a hard landing will not be the breaking down of the corrupt financial system, it will be the breakdown of our neighbors.
“So buckle up”
I’ve been buckled, I’m just starting to wonder how long this out-of-fuel 747 can defy gravity.
“Our property taxes are astronomically HIGH. A house now selling for 400K will cost you 24K and yes 24K in taxes. This is not a typo.”
That is simply mind boggling. I pay about $1900 a year on a house assessed in the mid 300K’s.
Cash-strapped municipalities are going to use large illiquid assets like houses as as cash cows as revenue from other sources dries up as the real economy (as opposed the Wall Street-Federal Reserve casino economy) dries up and blows away.
“Neither is it good math. 3% of $400K is $12K. If you are still at SU, chances are you can’t buy a $400K house, but you should be able to do the math.
I am a Chemical Engineer dude. I can do the math better than you. Either ask for a link or STFU
Oh my, a ChE. Maybe you should make that your screen name instead of your university. What was your grade in calculus and DifEq?
“I pay about $1900 a year on a house assessed in the mid 300K’s.”
I pay ~$2200/yr on $145k, but WA has no state income tax.
“I’m not building equity in my home.”
How about just living in it for the shelter it provides while paying the monthly nut, realizing that it will be paid off at the end of the loan term, and ignoring this “equity” bullsh!t?
cause inflating asset prices is an easy way to create more money in the system.
It doesn’t seem to be working Amy/$hithouse Poet.
Deflation is the worst fear of profligate governments and their central bankers. Printing away debts and liabilities, and rolling them over onto future generations, is vastly preferable to having market forces being allowed to set the value or affordability of things. And while I think the housing market is in a reinflated bubble, it’s also worth noting that in a time of universal fraud, possession remains nine-tenths of the law.
BINGO
“…possession remains nine-tenths of the law.”
As a renter now in possession of our place going on a decade, I am on board with that.
And our rent is less than the property taxes some are paying nowadays (e.g. $24,000+ for some according to other posts on this thread). Never mind the other components of PITI.
“Deflation is the worst fear of profligate governments and their central bankers.”
+1 Third parties from over-leveraged RE syndicates and insurance annuities to state and local taxing entities all have an interest in durable asset prices.
Although as Combo showed above, the new “money in the system” doesn’t go anywhere these days.
It does make it so some clown act politicians and central bankers can give us stats showing a reflation and they call it “recovery”, but at this point everyone realizes it’s all a lie.
And increasingly we’re all acting on that knowledge and the housing markets are now dead, with the exception of the remaining well-publicized pocket of insanity.
History, Mark Twain said, may not repeat itself, but it definitely rhymes. “Grapes of Wrath,” John Steinbeck’s searing account of how banker avarice backed by complicit and feckless authorities laid waste to the lives of millions of ordinary people while the plutocrats and banksters ruthlessly looted the productive economy, is as relevant now as it was during the 1930s.
http://www.theburningplatform.com/2014/06/21/grapes-of-wrath-2011/
That was excellent, RKH.
From the link above:
Steinbeck’s wrath was directed towards the bankers who stole the farms, the California landowners that treated the workers like vermin, and the police who sided with the wealthy and carried out the brutality on the workers. Tom Joad’s anger and wrath toward those who meant to make them cower is portrayed powerfully in this passage:
“I know, Ma. I’m a-tryin’. But them deputies- Did you ever see a deputy that didn’t have a fat ass? An’ they waggle their ass an’ flop their gun aroun’. Ma”, he said, “if it was the law they was workin’ with, why we could take it. But it ain’t the law. They’re a-working away at our spirits. They’re a-tryin’ to make us cringe an’ crawl like a whipped bitch. They’re tryin’ to break us. Why, Jesus Christ, Ma, they comes a time when the on’y way a fella can keep his decency is by takin’ a sock at a cop. They’re working on our decency”.”
Today, Steinbeck’s wrath would be focused upon Wall Street Mega-Banks, Mega-Corporations and the politicians that allow them to pillage the wealth of the nation.
And just like back then, Steinbeck’s work would be dismissed as communist propaganda by those he attacked.
I’ve read “The Grapes of Wrath” twice, but I’ve always felt that “East of Eden” was underrated. “There’s a capacity for appetite that a whole heaven and earth of cake can’t satisfy.”
“We should include a discussion on how people are faring with higher food prices, high gas prices and high utilities. The CNY area is approximately 427K and approximately 25 percent of the population is having a tough time paying their utility bills. … So our house prices are high, food prices are high, gas is high, utilities are high.”
Speaking of our own household situation, we are feeling increasingly squeezed between high marginal tax rates, increasing living costs and meager pay growth.
And we are among the lucky folks who didn’t lose their jobs or a fortune in stock or housing market losses during the Great Recession. I can only imagine the pain for those who were less fortunate than us.
Ditto.
Very accurately describes our situation as well.
I assume when they nationalize the houses in Venezuela, some other 21st century socialism countries, the renters will keep their house or get one that is appropriate free by fiat; the mansions will go to the revolutionaries.
my comment was meant for above in the possession is 9/10 of the law.
May housing Resales jump up (!)buy now folks make your best deal, 4% interest will be a distant memory this late fall, why did you wait?
Why buy today when prices when prices are falling? Buy later after prices bottom for 70% less.
As Schiller reported, people don’t need to dwell on housing prices will remain stable but will not drop.
Why buy when prices are falling?
Buy after prices bottom for 65% less.