@SanFranciscoFed @stlouisfed @NewYorkFed. Hey Fed presidents, please comment on this: The Fed erroneously does not consider rising home prices as inflation. Here’s the result in pictures. 
Chart Note
- Case-Shiller measures repeat sales of the same home over time. This ensures an accurate comparison of room size, yard size, and amenities. The only drawback is the data lags a bit. The most current data is from July representing transactions in May and June.
- OER stands for Owners’ Equivalent Rent. It’s the price of rent one would pay to rent one’s own house, unfurnished without utilities.
For 12 years, home prices, OER, Rent, and the overall CPI all rose together. That changed in 2000 with another trendline touch in 2012. Then it was off to the races as the Fed did round after round of QE, suppressing mortgage rates.
Case-Shiller Home Price vs Hourly Earnings, the CPI, and Rent
As with the previous chart, for 12 years, home prices, rent, the overall CPI and hourly earnings all rose together. That changed in 2000 with another trendline touch in 2012.
How Much Are Homes Overpriced?
If the 12-year trend of home prices rising with average hourly earnings stayed intact, the home price index would be 211, not 308.
From that we can calculate home prices are ((308-211) / 211) percent too high, roughly 46 percent too high. If you prefer, home prices would need to fall ((308-211) / 308), roughly 31 percent.
Alternatively, if home prices stagnate for years, wages may eventually catch up.
Case-Shiller Home Price 1988=$150,000
The same home that cost $150,000 in 1988 now costs $678,366. But wages have gone up too. And mortgage rates have had wild swings.
Mortgage Payment and Wage Adjusted Mortgage Payment
The Least Affordable Mortgages in History
Factoring in wage growth, home prices, and mortgage rates, homes are the most expensive ever.
It’s actually much worse than the chart indicates because property taxes and insurance are not factored into.
Mortgage Rates
Through massive and totally unwarranted QE, foolishly hoping to create more inflation, the Fed suppressed interest rates to record lows and mortgage rates followed.
Anyone with an an existing mortgage could and did refinance at 3.00 percent or below.
This increased “affordability” and we now have two classes of people courtesy of the Fed: winners and losers (existing home owners who refinanced low and those who want to buy).
Existing-Home Sales Decline 17 of Last 19 Months
Yes, This is a Crash
- Existing-home sales are down 35.8 percent in 2.5 years.
- Existing home sales are back to a level seen in the mid 1970s.
- If there is a decline next month, an that is highly likely, existing-home sales will drop to a 12-year low.
Real estate tooters keep telling me there is no crash.
What the heck are the above stats? Chopped liver? An egg salad sandwich?
Prices have not crashed but transactions have. Crashes are rare, but we are in one now, from a transaction perspective.
For further discussion, please see Existing-Home Sales Decline 17 of Last 19 Months – Yes, This is a Crash
Let’s look at the pipeline next.
Mortgage Application at 30-Year Lows
Please note Mortgage Application Volume Nears 30-Year Lows
“Mortgage rates continued to move higher last week as markets digested the recent upswing in Treasury yields. Rates for all mortgage products increased, with the 30-year fixed mortgage rate increasing for the fourth consecutive week, up to and above 7.53 percent – the highest rate since 2000,” said Joel Kan, MBA’s Vice President and Deputy Chief Economist. “As a result, mortgage applications ground to a halt, dropping to the lowest level since 1996. The purchase market slowed to the lowest level of activity since 1995, as the rapid rise in rates pushed an increasing number of potential homebuyers out of the market. ARM loan applications picked up over the week and the ARM share increased to 8 percent, as some borrowers searched for ways to lower their payments.”
What About the Winners?
Good question. The winners refinanced at 3.0 percent or below. This put extra money in their pockets every month to spend.
And rising wages further stimulated ability of the winners to buy goods and services.
Thus the Fed is still paying for its asinine push to create inflation.
Meanwhile, the housing market is dead and will remain dead with mortgage rates approaching 8.00 percent.
What About Rent?
That’s another good question. For 24 months or so, economists have been predicting an ease in rent inflations.
On September 13, I noted Consumer Price Inflation Jumps 0.6 Percent Led by Energy and Shelter
The price of gasoline rose 10.6 percent, rent another 0.5 percent, shelter, 0.3 percent, and new cars 0.3 percent leading the way for a 0.6 percent increase in the CPI in August.
The price of rent has gone up at least 0.4 percent for 25 straight months. Not to worry, Paul Krugman says this is lagging.
When Will Record Housing Units Under Construction Ease Rent Inflation?
On October 2, I asked When Will Record Housing Units Under Construction Ease Rent Inflation?
That’s really a trick question. For a better question, remove the lead “when” from the sentence.
The answer is: I don’t know, nor does anyone else, although people claim to be clairvoyant.
Housing Units Under Construction vs CPI Rent Year-Over-Year
I saw the theory that rent would collapse as soon as housing units get completed so many times that I almost started believing it myself.
However, the data shows no discernable correlation no matter how you shift the lead or lag times.
The chart looks totally random. So perhaps rent abate. Perhaps not. The data itself provides no reason to believe anything.
Regardless, please note the floor. Year-over-year rent has a floor of about 2 percent except in the Great Recession housing crash.
And these charts are not imputed Owner’s Equivalent Rent prices for which people pay no actual rent. These charts reflect rent of primary residence.
34 Percent are Screwed
Well, don’t worry. Only 34 percent of the nation rents, and besides, rent is lagging.
Sarcasm aside, the Fed blew huge asset bubbles and did not see that as inflation. Nor did the Fed see that three massive rounds of fiscal stimulus would cause inflation.
Real Income and Spending Billions of Chained Dollars
Note the three rounds of massive fiscal stimulus in the Covid pandemic. This triggered the most inflation since the 1970s. Economists debate how much “excess savings” still remains.
For discussion of excess savings, please see Excess Pandemic Savings, How Much is Still Unspent?
The Fed never saw this coming, never saw a housing bubble in 2007, and has never once predicted a recession.
Heck, former Fed chair Ben Bernanke denied a housing bubble and denied a severe recession that had already started.
Expect More Inflation Everywhere
Adding to the inflation misery, Biden is doing everything humanly possible to stoke inflation with EV mandates, natural gas mandates, union pandering, student debt forgiveness, and regulations, some of which is blatantly unconstitutional.
As a result inflation is not coming down as fast as the Fed thought.
Thus, Fed Rate Interest Rate Hike Expectations Are Still Higher for Even Longer.
Looking to Buy a Home?
If you are looking to buy your first home and need to finance, good luck.
Think about all of the things people get when they buy a home: Appliances, furniture, carpet, cabinets, landscaping, paint, wallpaper, etc. Housing normally brings the economy in and out of recession. But this is activity that will not happen as long as interest rates stay high.
It may weigh on economic activity for years.
If you are one of the winners, congrats. But that extra money the Fed put in your pocket every month may stoke inflation for a long time. This is at the expense of everyone else.
The longer the Fed holds rates high, the longer the housing transaction crash lasts. But cutting rates will further expand the housing bubble, asset bubbles in general. And bubbles are destabilizing.
This is the Fed’s tightrope dilemma, of its own making, foolishly hoping to make up for lack of enough inflation, calculated by not factoring in home prices or asset bubbles.
Does the Fed ever get anything right?
Prices aren’t going up, the purchasing power of your money is going down, thanks to the FED extreme loose monetary policy for the last decade.
“If the American people ever allow private banks to control the issue of their currency, first by inflation, then by deflation, the banks and corporations that will grow up around them will deprive the people of all property until their children wake up homeless.” – Thomas Jefferson
One thing on the subject, that can be mentioned, and is a bit interesting, is that the way CPI is calculated in the US shelter is given a very large weight. And shelter is much dependent on interest rates. So in the US FED is actually cranking up CPI.
If CPI in the US was calculated in the same way as HICP in EU, then CPI would be around 2%, and FED can start lowering rates.
You get an idea if you look at this https://fred.stlouisfed.org/series/CP0000USM086NEST
“The longer the Fed holds rates high, the longer the housing transaction crash lasts. But cutting rates will further expand the housing bubble, asset bubbles in general. And bubbles are destabilizing.”
Mish seems to think that the central bank “holds rates high”, but they are simply following the commands of the bond market… the statement should be corrected to read “as long as bond prices stay low or keep falling” …whether via bond holders selling, or the government creating more debt… the obvious inference is that “the market” sees the levels of debt as too high for the levels of growth… and in fact what a lot of data shows is economic contraction, reduction in trade and in corporate real earnings through actually selling stuff rather than getting various forms of debt and handouts. This failure of markets caused by interventions is being responded to with declining margins and falling support for capital asset prices such as property. A lot of this is not just driven by enormous unsustainable debt, but by government policies on policing, netzero, illegal immigration, sanctions, and the the aftermath of lockdowns.
Sure, the attempt is to try and inflate the debt away, but that requires more credit to be issued by banks, who can’t do that without real economic growth to prompt demand, and so this “inflate the debt away” effort is being undermined by broader deflation and rising risk of depression.
It’s looking like oil and the dollar trending upwards, which is good for some and very ungood for others, so all of this suggests sustained downward pressure stocks and house prices. Illegal mass immigration is not enough to stymie that.
Those rising prices look like stymying global trade and creating unemployment around the world. It could be particularly bad in US and EU, where the main reserve currencies are. Reduced government budgets, and increasing demographic and social stresses, and the need to find an external enemy to blame it all on… who might that be? There’s a list… it’s almost like the goodies and baddies are all lining up.
Surely war is bad for the environment as well as trade?!
CPI is not very relevant here. That doesn’t include the effect of growth in the economy.
Try with GDP/Capita instead.
If prices for housing increases more than cost then there is a big profit in producing houses. And then everyone will move in to this profitable market and production of houses will explode.
Have you seen a drastic increase in production at those times?
If not then there is a flaw in your model. Then you should try to figure out what the flaw is.
Home sales are in the gutter because people cannot afford them. Period.
The fact is, wages have not kept up with the price of a home.
GDP per Capita does not have anything to do with this.
I would say that the reason for low sales volumes is that owners are sitting with 30 year mortgage with 1% interest rate. Which they lose if they sell. The interest rate for the new house they buy will be 5% or so.
That is a strong reason to NOT move. Thus, low sales volumes.
(This leads to the a bit bizarre situation that builders are busy building houses to new home buyers. Its not possible for them to buy existing homes).
Had there been floating rates instead, there would have been sales, and no new houses built.
GDP/Capita shows how much an average person can spend over a year. That considers growth. CPI doesn’t show growth.
Sizes of houses where I live are almost double in size now, compared to when I was born. Of course, prices goes up when the size almost doubles. You are buying almost the double amount. GDP/Capita will include this effect. CPI will not.
“Floating rates”, you mean like in the UK? I guess there are other issues in countries where spare land is at a premium, and where distances to travel mean that people can live all over the country and still commute to work.
People still can’t buy houses with “floating rates” if the (policy-driven) costs of living rises exceed the income rises, and crush the margin people live on; not to mention the small matter of how many people can qualify for loans in a more risk-averse banking environment, even if they can get access to those higher and rising rates. Houses in the UK are tiny and getting smaller. It’s Japanification in more ways than one in that little archipelago.
Floating rates refer to when the interest rates adapt to market rates daily. Or lets say up to every 3 months. In the latter case every 3-months your mortgage is changed to whatever market rates are. (I think the is called ARM in the US. But it is not common in the US).
Then the mortgage rates will not prevent you from selling and buying a new home. You will get the same rates on the new home as for the existing.
However, that is not the case in the US where rates are fixed for up to 30 years.
So if your mortgage is 1% for the coming 25 years you will be very reluctant to sell and buy a new home when you will get 5% for the coming 30 years.
This is why sales volumes for existing homes are very low in the US.
This seems to be true not just in America, but also in Canada, in the UK & EFTA, the EU, Australia & NZ, Korea, …and let’s not talk about China.
Japan at least, like Russia, has a falling population, so there’s some hope…
for the love of everything holy, the FED has only ONE MANDATE. all your writing of fed missing this or pumping that is just twaddle for middlebrows. i hope you don’t actually believe it. the FEDRESNY where all the action is, has owners. why it was set up. to have the middlebrows pay for the NYC banks to have access to free money in panics. a direct result of the panic of 1908 when the man JP morgan had to use his own money. For the love of jesus and allah, please go study history and track record. see how many regional banks were destroyed by the aforementioned nyc banks. thousands in the past century. FED HAS ONE JOB. AND ONLY ONE JOB. the rest is pure 100% USDA bullshit. i respect you Mish, and want you to learn this fundamental truth. i’ll be walking past the NYFED tomorrow morning and will tip my ball cap to those great swindlers and greatest con men of all time……..as i normally do.
One way to reduce home price is to stop real estate as investment for the wealthy. You do this by “stopping” any tax allowances for those who have more than one house which is not used as primary residence. This includes shell companies. Another is to go after the analytic platforms like zillow, realtor, redfin etc to not buy properties based on the search/interest being done on their platform (this is one of the unfair practice that no one wants to talk about). Time to stop monopoly of housing construction by horton and lennar and promote more small builders. These companies wants to keep the prices inflated for their own profit. I also think none of this will happen when the politicians itself is invested in real estate shell companies so all we can do it bark.
The question is, does it really work? In the UK, unoccupied houses can be taken out of the local tax system, so second homes can just be bought, kept empty, and locked up.
Landlording has been hammered by treating it like a business, and adding a 20% tax on rental yields to add to the higher buy-to-let mortgage rates and deposit requirements. Now in this rising rate and rising tax environment, landlords are being crushed, and trying to sell their tenanted-out houses, but the tenancy laws and regulations make it very difficult to evict any sitting tenant, so the houses have to be sold with the failing business model intact, so who’s buying that at more than the landlord paid for it? Nobody… why not? because they can’t remove the tenants, and the “investment” only works if the price of the property is at bargain discounts… but the landlords “can’t” sell at a price that leaves them in negative equity – but the market says tough…
Hence, hammering the wealthy property owners doesn’t have the effect you want… it doesn’t free up much housing, it leads to a glut of houses that nobody wants, occupied by people on low incomes in depressed areas. The landlords divest back to the banks if the “business” becomes insolvent, and the banks don’t want them and can’t sell them for the same reasons, so in the end, the government probably ends up buying them and subsidising this housing for these tenants, and that results in more taxes for the general population, further sustaining the depression.
Who is going to build houses when the costs of doing that are not going down, but when the market for buying them is going down? Throw in illegal mass immigration, and you have a high pressure tinderbox with growing potential to ignite.
Home prices arer down 0.6% from the June 2022 peak (Case Shiller Index). The housing market is definitely NOT “destroyed”.
https://wolfstreet.Com/2023/09/26/the-most-splendid-housing-bubbles-in-america-september-update-spring-bounce-fades-20-city-index-0-6-from-peak-in-2022-flat-year-over-year/
Those that do not own a home sure missed a golden opportunity.
Devaluing the dollar drives inflation. Home prices may drop some but the inputs to construction are not going to drop from where they are. Wages are never going down and these are imbedded in all the materials in construction. Replacement costs will give housing a floor.
It seems possible that given rates have kept people in their existing homes, spawned new home construction, and kept prices high that the eventual reduction in rates would have the opposite effect. Given this would likely happen in the context of an economy that is on the verge of or already in recession this would be ummm bad.
Funny, Barclays just came out with a piece citing Zonda Sept Data pointing to “remarkable new resi strength” as homebuilders see construction demand up 0.8% MoM. So who is buying here, someone tell me.
It’s mostly new home buyers who are grossly over represented among buyers based on historical numbers.
One thing I’m noticing here in the UK over the past two years is that the aging boomer population is downsizing – monetizing huge gains in their existing properties and moving into smaller homes (the sellers of our current property moved into new builds).
…and that released capital goes where?
– nursing home demands – even if there are adult children
– funding adult children’s housing demands – if there are any adult children
– tax rises and bill increases – for lonely pensioners trying to survive
– maybe even a cruise or two for the lucky few – with successful children
The rise in adult children staying at home does have somewhat of a financial win-win effect, although at the cost of a social life.
It’s pareto-style polarisation of society. The hollowing out of inner cities and replacement of the indigenous population with immigrants, sometimes crammed into housing and exploited by previous immigrants.
Rents are bad here in LA but I’ve noticed rural America’s have shot up too. Between $6 a gallon gasoline, rental housing stress, and food prices that have almost doubled since the pandemic life is become a whole lot tougher economically. No wonder one see’s more and more homeless older folks on the street here with no way way out. Thank you FED for doing an absolutely lousy job of providing price stability.
1) Biden purges opponents. Trump, if elected, may do the same. Our democracy is gone.
2) The Fed’s raids built a tsunami. Economists know about positive feedback loops, but ignore friction, money retardation.
3) Since Mar 2020, after taking off, gov boosters used to glide higher, thereafter
using less power, without shutting down the engines. Taking off in Mar 2020 was Trump’s option. Landing is mandatory. Are they, Trump or Biden, good pilots : no.
My property taxes went up 30% this year. Which is funny because ive seen area targeted ads on youtube talking about how they are keeping them low here. Lying bastards.
Only good tbing is the building of new places in my rural area has come to a screaching halt. However the lots for sale are still insanely priced for being out in the country. Around 25 to 30k an acre. Only $150k for a 5 acre lot and 5 miles of gravel to get to it. I lmao watching corvettes etc drive by at 5mph. Or the ones that move to the country and end up in a small housing community with golf course like yards with sprinkler systems. Its like their neighborhood was transplanted. Everything they left behind they bring with them. Gtfo of here.
the suburban life was a big con job sale. made millions of city emplloyee middlebrow think they were going back to some heroic agrarian life of their great grandparents………..a great swindle. hat tip to autos, builders, oil and lawn lobby……….
Lots of rational muckraker financial reporting available to steer clear of the yellow Fed and legacy media reporting. I would honestly get more value out of Yellen reporting on why those who invested in Beanie Babies was a horrible idea than her thoughts on any current financial topic.
Mish, first of all, thanks—I always enjoy your commentary. A couple of things. 1. The 30-year Treasury Bond has reached 5%. Some say that’s good news and demonstrates positive investor sentiment toward long-term price stabilization. Is this accurate? Or does it build in and /or signal higher inflation and higher interest rates? I once read (years ago) that anything above 4.7 on the 30-year bond was an inevitable inflation and, more so, a point of no return. 2. What do you think of RFKJr’s candidacy and economic policies? For instance, he has just said that he would support 3% home loans for first-time homebuyers financed by government tax-free bonds sold on the open market. Thanks, and I look forward to your responses.
Thanks MLC
I suspect that unless something radical changes we are stuck with either Trump or Biden. This is one I got wrong. My political calls have generally been pretty good.
There is no such thing as a point of no return on interest rates. But I did call the secular low on the the 30-year long bond on time near 1 percent. Many people had been declaring the low for years and saying short bonds while I kept saying not yet.
Since Biden will recklessly add to inflation and Trump a bit less, the prognosis is simply not good no matter who wins.
C/S is positively biased. Few pairs bought in 1988 for 150,000 sold in 2023
for 680,000 boost c/s chart, skew the RE market. When c/s runs out of 1988/2024 pairs it will drop. Inflation will take care of the rest in real terms.
Hey Mish,
On a side note. It appears that Wagner PMC is re-entering the Ukraine war. You’ll never guess who at its helm: Prigozhin’s son! Prigozhin is probably in retirement enjoying his $ millions. Boy was the West played on this one!
Government: “American’s will have to go through pain in order to bring down inflation.”
Also Government: “Let’s send another billion of American’s tax dollars to the Ukraine.”
try 100 billion. as long as ukraine MIC and israel are taken care of who are we to complain.
What the Fed giveth, the Fed taketh away!
The Fed seems to love boom/bust: 2000, 2008 and now 2024? The choices are debt deflation or inflation. To provide cover for the coming inflation we probably need a debt deflation crisis. Markets and manias go hand in glove. But central planning seems to put it on steriods.
2 comments:
1. “The Fed erroneously does not consider rising home prices as inflation.” The same can be said for stock prices. What’s the difference? Should young folks be trying to invest for retirement in over-priced stocks?
2. What happened in 2000? That seems to be the turning point. Not QE after the Great Recession.
2000 was just about the end of William Jefferson’s second term.
I felt, back then, that the run up in stocks at that time was because of his tomfoolery.
And I fully agree.
This stock market is due to inflation (dollar devaluation) and not equity valuation.
amerikan productivity has decreased over the decades. the raygunomics debt boom is what juiced the nominal amounts of stocks and real estate. debt will do that. it’s also called inflation. any twaddle talk of deflation the past 40 years is really stupid. idiots who know nothing about history of money. versus currency.
Do you actually know what deflation is and what inflation is?!
Productivity is a pretty meaningless statistic, generalised across job types and industries and with measures of things devoid of context.
Good news, gasoline will be dropping like a rock. Already started. Implied demand is collapsing (to multi-year lows – ALREADY, before winter’s downturn), and the strong seasonal downtrend into Jan is in full swing . Even early now.
See George Garvey: Deposit Velocity and Its Significance (stlouisfed.org)
“Obviously, velocity of total deposits, including time deposits, is considerably lower than that computed for demand deposits alone. The precise difference between the two sets of ratios would depend on the relative share of time deposits in the total as well as on the respective turnover rates of the two types of deposits.”
You mean the Fed caused the price of pictures to go up? That makes sense.
and here I thought that was writers strike
more likely it was woke AI
Thank you, this is exactly what I was looking for.
As I said: The only tool, credit control device, at the disposal of the monetary authority in a free capitalistic system through which the volume of money can be properly controlled is legal reserves. The FED will obviously, sometime in the future, lose control of the money stock. May 8, 2020. 10:38 AMLink
Link: Daniel L. Thornton, May 12, 2022:
“However, on March 26, 2020, the Board of Governors reduced the reserve requirement on checkable deposits to zero. This action ended the Fed’s ability to control M1.”
Then Shadow Stats reported it: “The most-liquid “Basic M1” (currency plus Demand Deposits) held 118.1% above its Pre-Pandemic Level and is increasing year-to-year,” I.e., velocity is increasing.
In other words, the composition of the money stock has changed. There is now a higher percentage of transaction deposits relative to gated deposits.
shadow stats was always correct. even the scoundrel larry summers admitted such. i know mish thinks it’s not valid, but they were way more correct about inflation than mish or vast majority of analysts and bloggers……………..it was a gimme. the real winners did NOT borrow at 3 percent. the real winners sold their r/e at top last summer. the r/e is heading south. probably last 10 to 20 years. have fun being upside down at 3 percent.
Reserves that can’t enter the economy from the closed loop between the central bank and commercial banks are not really money, are they. They can’t be spent, or used to create or replace deposits, or loaned out. They are practically useless as collateral.
The fed can inflate faster than physical housing can be built.
Lawrence K. Roos, Past President, Federal Reserve Bank of St. Louis & past member of the FOMC (the policy arm of the Fed) as cited in the WSJ April 10, 1986 “…I do not believe that the control of money growth ever became the primary priority of the Fed. I think that there was always & still is, a preoccupation with stabilization of interest rates”. Note: Volcker widened the Federal Funds brackets (policy rate) – didn’t eliminate them.
Keynes’s liquidity preference curve (demand for money) is a false doctrine. The money supply can never be managed by any attempt to control the cost of credit (i.e., thru pegging the interest rate on governments; or thru “floors”, “ceilings”, “corridors”, “brackets”, IOeR, etc).
Money flows, the volume and velocity of means-of-payment money, rose to all-time highs in November 2020. Who would have thought?
All those that were scared out of their wits by SARS-Cov2 in 2020 weren’t thinking especially clearly.
That is nearly impossible to do when one is scared stupid (so to speak). It’s why fear is such an effective tool to manage people.
Asset price valuations are driven from the appraisal of loan collateral, in this case, the artificial suppression of interest rates.
Richard Fisher, November 2, 2006: – Fed
Déjà vu: “In retrospect [because of faulty data] the real funds rate turned out to be lower than what was deemed appropriate at the time and was held lower longer than it should have been. In this case, poor data led to policy action that amplified speculative activity in housing and other markets. The point is that we need to continue to develop and work with better data.”
this sounds like the appraisers/banksters of the Trump properties
Future generations need not apply.
The Big Three: FOOD, CLOTHING and SHELTER.
NONE of the big three are affordable now.
No worries these are too volital and excluded from core CPI. Thus inflation isn’t nearly as bad as you think!
Clothing? What the heck? I can wear the heck of my shorts & socks, even to the point of them having holes in them.
But, I need gas in my car to drive to work.
So, let’s go with FOOD, SHELTER & FUEL (petrol, electricity & NG).
No matter how you look at it, permanent high or moderate interest rates are better for the economy and the country over time…this may cause some short term pain, but in the long term it fixes a lot of issues in the system such as instabilities and imbalances…
Yes, but they’re really bad for government spending, when you’ve got $33T in debt that’s growing like a wildfire along with the interest expense.
Therein lies JPowell’s conundrum.
How long can Uncle Sam handle higher for longer? How much longer can zombie companies handle higher for longer? How much longer can Joe Consumer’s credit cards & car payment’s handle higher for longer?
There are all sorts of things that need to see price deflation, if higher for longer sticks around.
“How long can Uncle Sam handle higher for longer? How much longer can zombie companies handle higher for longer? How much longer can Joe Consumer’s credit cards & car payment’s handle higher for longer?”
Who cares. The former can default, the latters go bankrupt.
All of which will render America, and the world, a lot better off.
The way to increase home affordability is to keep mortgage interest rates high, definitely higher than inflation. Eventually housing prices will come down. With high interest rates, people can save for a down payment because they receive interest which is higher than inflation and higher than the growth of housing prices. I would also limit government backed fixed mortgages to one per taxpayer unit with none for any REITs or private equity. I would also consider eliminating or revising the depreciation deduction which would alter after tax cashflow for landlords. This would lower competition for housing and put more pressure on prices.
Yes my home would decline in value but it would be much better for the country to have people live in affordable houses that they can own.
I would then point out that with the 20-30% annual inflation
in things we need – gotta keep the exponential debt going per CONgress
if prices came down, then we input the high inflation(ie devaluation fiat $dollar)
wouldn’t prices pretty much just remain same – ie go sideways
I wonder when BlackRock will start dumping their inventory? If legislation was passed that was negative for institutional owners of single family homes, that would really improve home affordability.
Now there’s some sanity, people! Let’s make this person the CEO of the National Realtors Association.
Lower prices to the tune of 31%. Hell yes! Love it!
Why? Because as Mish has correctly shown, housing is way over priced which is THE major factor in affordability. It’s not interest rates, once you factor in long-term averages.
I don’t think it’s even that simple anymore.
Consider two things: a) The attractiveness of the investment b) What will happen if housing prices drop sharply.
a) In a scenario in which high inflation is entrenched it’s hard to beat housing as an investment because: 1) It has a high replacement cost 2) You can earn rents on it that keep pace or even exceed the overall inflation rate. Institutional investors are buying up houses with unalloyed cash for sound reasons.
b) If housing prices drop sharply – this would almost certainly trigger serious fiscal crises for cities & towns. Main St is dead as a result of secular trends and the SMB killing frost of the pandemic lockdowns. As a results, cities & towns are more dependent on real estate tax revenues than ever. This problem gets even worse when you factor in that lots of cities and towns used state-supplied Pandemic relief funds from their State governments to undertake projects that were co-funded with additional debt.
For (b), depends on why housing prices drop. For instance, if housing prices drop because investor tax breaks for home ownership are phased out, then on net, tax revenue could be flat or increase.
It’s funny how 5% is now considered “high”… this generation hasn’t yet been introduced to the concept of double-digit interest rates on mortgages yet; perhaps credit cards are a presage for the possibility of 10% rates eating up that socialist pie?