The Fed has grossly distorted the housing market and no fix is in sight. A couple of images will explain. 
Home Price Calculation Notes
- Case-Shiller measures repeat sales of the same home over time.
- Case-Shiller is a much better, but less timely measure than median or average home price. However, the measure lags. Recent data is through May representing sales in February, March, and April.
- The price above reflects the increasing value of the Case-Shiller index over time.
Mortgage Payment and Mortgage Rate
The above chart represents the mortgage payment of the same house as the lead chart reflecting the changing price and interest rate over time.
Price, Mortgage Rate, Mortgage Payment Over Time, Same House
- The $150,000 home purchased in January 1988 had a mortgage payment of $1,076 reflecting a mortgage rate of 10.38 percent.
- In 2006, the home was worth about $403,634 up and the mortgage payment was $2,086 reflecting a mortgage rate of 6.52 percent.
- If you bought at the end of 2020 when the Fed clobbered interest rates to a record low of 2.68 percent, that same home that cost $150,000 in 1988 would have cost $502,649. However, due to Fed “affordability” magic, the mortgage payment was only $1,605. Thank you Fed!
- However, if you want to buy now (May 2024) that $150,000 1988 home will set you back a mere $707,499. Your mortgage payment would be $3,662 at a mortgage rate of 7.06 percent. Oops and Ouch!
It’s Worse Than Described Above
Mortgage rates are slightly higher in practice.
Also, prices do not include property taxes or insurance.
Mess Entirely of Fed’s Making
This is a mess entirely of the Fed’s making. And it’s what happens when the Fed, and economists in general do not count home prices as inflation.
Home prices are not directly in the CPI or PCE. The latter is the Fed’s preferred measure of inflation.
Economists consider home prices a capital expense not a consumer expense. The problem is simple: Inflation is not just a consumer price concern!
The Fed ignored obvious inflation in the Great Recession and did so again in the Covid recession.
Existing Home Sales Drop 5.4 Percent But Median Price Hits New Record
Existing-home sales declined 5.4 percent in June. It was the 23rd decline in 29 months. But the median price hit a new record.
For Discussion, please see Existing Home Sales Drop 5.4 Percent But Median Price Hits New Record
Existing-home sales are about where they were in December 1995 and May 1979!
Only price-insensitive buyers, the newly rich, or those who just sold their previous house, can afford to buy.
All-cash sales accounted for 28% of purchase transactions in June.
Housing, Rent, CPI Indexes Jan 2020 vs May 2024
- Housing: 212 to 323, +52.4 Percent
- Rent 187 to 231, +23.5 Percent
- CPI: 153 to 185, +20.9 Percent
Haves vs Have Nots
Existing homeowners who refinanced near or perhaps even under 3.0 percent have extra money in their pocket every month to spend. And they do.
Those who spend every penny then have an unexpected expense or a big rent increase are in trouble.
The group of people who were doing OK but now aren’t is expanding. Also the unemployment rate is rising and small business employment is in a serious nose dive.
Small Business Employment Growth Is Now Negative
For discussion, please see Small Business Employment Growth Is Now Negative (and What It Means)
ADP data shows year-over-year payroll growth is negative 88,000 for small corporations sized 20-49. Trends are negative in all but very large corporations.
On July 26, I commented Expect the BLS to Revise Job Growth Down by 730,000 in 2023, More This Year
At the heart of these revisions is a horribly flawed birth-death model used by the BLS. My calculation closely matches an estimate by Bloomberg’s chief Economist.
In addition to the birth-death model, or perhaps explaining the birth-death model errors, small business employment is declining fast.
Unemployment Rate Jumps, Jobs Rise Only 114,000 with More Negative Revisions
On August 2, I commented Unemployment Rate Jumps, Jobs Rise Only 114,000 with More Negative Revisions
The headline jobs number was much weaker than the consensus estimate of 180,000 and the unemployment rate rose 0.2 percentage points.
The McKelvey (Sahm) Unemployment Rate Recession Rule Just Triggered
On July 8 I commented Weak Data Says a Recession Has Already Started, Let’s Now Discuss When
I did an update on August 2 using a tighter trigger.
Also on August 2, I commented The McKelvey (Sahm) Unemployment Rate Recession Rule Just Triggered
Recession with rising unemployment rates and 15,000 Layoffs at Intel is not the best environment to be buying a house even if mortgage rates have declined.
Why do you blame the Secular Ruling Families F.R.S.?
The FED is working as expected. Try to blame something more logical!
The upper third economic class thanks the Fed. The monetary socialist version of trickle-down, that runs the current economy. It’s based on the archaic theory of Secular Stagnation, described in a March 25, 2016 “Time.com” article: “What is Secular Stagnation”.
The low-rate Fed policy solution to secular stagnation was proposed by Larry Summers to the IMF in 2013. Summers was Obama’s early economic advisor, and first choice for Fed Chairman, until congress rejected him. Janet Yellen initiated the policy in 2014, when she took 10-year Treasury rates below the lows of Bernanke’s 2007 mortgage crisis bailout.
Bernanke’s low-rate bailout of the mortgage meltdown, inflated home values back to pre-crisis levels by 2012. Bernanke proposed the end of QE in 2013. Rates increased and home prices stagnated. Bernanke was under pressure from China to end the Fed’s devaluation of the dollar. The Chinese government used university students to protest the artificial trade discrepancy. Bernanke visited China, where he likely presented secular stagnation policy, because the protests stopped.
The Fed prefers to manipulate 10-year Treasury yields, because of their influence on mortgage rates. Though the Fed directs attention to FFR. Inflated home prices have become the major component of household wealth. This gives homeowners a sense of prosperity, and motivates spending. While low rates discourage saving and encourage debt.
The fundamental duplicity of secular stagnation is inflated home/asset prices increase consumer inflation. Unless the measure is gerrymandered.
The “Time.com” article prophetically outlines low-rate government spending to stimulate the economy: infrastructure, new inventions & green technology (electric power), population growth & new people entering the work force (immigration). The progressive template. Except, the poorly timed Biden administration promotes these issues in a high-rate/high-inflation economy. During Obama’s term, the trillions in fiat was used to refund liquidity lost by wealthy brokers, during the mortgage crisis.
While China went all-in, except for immigration. They dominated the electric energy market. Developed a silk road infrastructure throughout Asia and Africa. Built high rises and cities that are now empty liabilities, which should have been filled with Uyghur immigrants.
Summers mentioned, that if the Fed were to take real interest rates to historical lows (pandemic lows) it creates a host of adverse consequences, from dangerous financial schemes (digital currency, 2 percent Treasury bonds) to asset bubbles like housing booms. Summers now works for a crypto currency firm.
Juices the economy but also affords more squeeze for property taxes. Tar, feathers, rails.
I hear there was only a single sale at 2.5MM last month in the US, so expect the median price to hit a really big record next month
And that for a house which in 1988 was still livable. But today has already fallen down; unless propped up solely by the sheer mass of dead fungi trapped within its suitable-for-tearing-down-only-in-civilized-soceieties walls.
This is a textbook demonstration of how a society gets poorer and poorer year-in, year out, whether Argentina or The US: 1)Nothing new is “permitted” by the for-illiterate-retards-only junta. Since “new” requires some competence to build, and competence, at anything at all, is something no “made-money-from-my-home” illiterate retard has ever had any of; at all. And 2) What value once existed 50 years ago, is left to just sit there and decay, instead of being replaced/improved upon. Again,since the retards whom The Fed has handed nominal “ownership” of the decaying shacks to, are unable to compete at anything at all and consequently insist of banning their at-all-things betters from making trivial end-runs around them.
With the result that The US now has, at best, half as much valuable anything, as it did in 1970. It was a wealthy first world country back then. While now, it is an, at best, second world country more akin to places like Argentina. And it’s still still falling further and getting poorer; one retarded submonkey’s “home apppjeciation” at a time.
If the Fed had it’s way (2.0-2.5 pct inflation per year), the 1988 $150K house would be $350K. However, back in 1988 many households had single incomes. With a higher percentage of dual incomes and lower supply, the price meets the new standard (explains some of the delta from $350K to $700K).
…and the Federal Minimum Wage is $7.25/hr.
That is what is known in psychiatric terms as “ritual humiliation”.
The public is being played. The Ownership Society program didn’t just happen naturally. It was by design. A housing bubble was needed to bail out the .com crash. Greenspan took lending standards to zero, while Bush claimed we had a lack of home owners. In 2005 Greenspan praised bankers for getting people into homes they otherwise could not afford. Truth was they couldn’t afford them. It was all a fraud. After the crash, Greenspan pretended to lament that he thought the bankers would have been more responsible. But it was Greenspan who took the lending standard to ZERO, which was irresponsible. Greenspan incentivized what the bankers did. Bernanke referred no one for prosecution, then lamented he didn’t, after he left the central bank barn and had no power to do so. See how the game was played? The public is still being played.
Thanks for putting out a fact based analysis of Results of Fed policy decisions.
This is what is needed to change the course of this Nation.
To those who think a House is also a place to have a Family and have a Life the other thing not in the figures is falling quality, ie shrinkflation is running rampant in new Housing.
Paper mache interior doors for instance instead of solid wood.
Plastic water supply lines instead of copper which have a much shorter Life Cycle.
Aluminum wire instead of Copper.
Flakeboard sheathing.
Plastic siding.
It gets glossed over by putting stone Countertops and other goodies, however the core structures now are much less dense so your floors will bounce instead of feeling solid to the footstep.
All Legally allowed to cut corners but a cheaper build as final result.
Amen! Sad but true. Most buyers don’t even know the difference between a quality build and a super cheap build.
The problem is the Keynesian macro-economic persuasion that maintains a commercial bank is a financial intermediary. Lending by the DFIs is inflationary. Lending by the NBFIs is noninflationary (other things equal). And the NBFIs are the DFI’s customers.
Reg Q ceilings were gradually relaxed until they were removed. That impounded savings creating the need to expand bank credit as an offset (as banks don’t lend deposits).
Then, the DIDMCA of March 31st turned the thrifts into banks. That killed the velocity of circulation. That killed the S&Ls and exacerbated the need for higher rates of change in bank credit.
The Emergency Economic Stabilization Act of 2008 destroyed the thrifts by allowing the banks to outbid the nonbanks for loan funds. And Bernanke bankrupt half the home builders creating a housing shortage.
The Emergency Economic Stabilization Act of 2008 artificially lowered interest rates. That pushed up housing prices.
Then Powell increased the money supply to an all-time high by monetizing the fiscal deficits. “Legislation passed by the Congress in March 2020, December 2020, and March 2021 provided a total of nearly $5.8 trillion in fiscal support to the U.S. economy”
Mish, this was one of your best articles this month. Well done in explaining things.
And, coincidentally, I bought my Second home in 1988! It was a new home and we got it for $204,000 with an 11% variable rate.
Our monthly payment; $1400 or so. Prop taxes were $2299 a year ($192 a month), and insurance was $2000 a year ($167 a month).
Our Med insurance was covered by my COMPANY (I owned it – – high tech, I was Co-Owner/Exec VP (of Sales/Marketing/Service/Tech Support)
So, the house alone was $1400+192+167)=.$1759 a month, not including up-keep, maint., Utilities, and Cable.
Those were over $250 average and do not include building the DECK, installing a Pool and heating/treating it…etc.
Groceries were still cheap. Eating out was middling area, and travel by plane was VERY expensive.
So, we have to net out a cash flow, after taxes, of over $25K a year to cover the basic house. Cars, car insurance, car Maint. and other expenses with Groceries was about $2,000 a month.
So, we had to net out over $50,000d annually, after taxes, to pay these expenses, not include Income Tax Write-offs (Mort Int, etc.).
These expenses are JUST HOUSE and MAINT, etc. The house was under a warranty for failures and we had ONE issue with a ROOF tile and a leaky Shower door. It was well-built with Concrete Tiles.
We experienced the 1989 Loma-Prieta Earthquake and only had a painting fall off of wall and crack the glass (It was a $125,000 Painting created by a famous painter/friend of ours who gave it as a wedding Present years earlier). We still have it.
Anyway, I hope that this was interesting. We did finally sell that Company, sold that big house, moved to the Mountains below Mt Lassen in Cal and I have not worked much since. I was 38 when I retired and I self-control the Assets (learned how to read charts, trade options and our loot is still intact and I have a 7 figure gain still in Fixed income (right now).
I am awaiting a REAL market correction to deploy money into Preferred Stocks and Muni/Corp Bonds and other more esoteric investments.
We sold out last home and are waiting it out and we may well move to a foreign country (Spain, Portugal or Turkey or Albania) in the near future to escape American’s demise.
We finally sold our Mountain Home and live full time on the road, in two RV’s (Diesel Pusher and a stationary 42 Foot 5th Wheel trailer) and the latter sits in a Co-Op RV park in Oregon state near the ocean front and a commercial fishing port.
Since we have LOW outgo for homes, we travel 1st class, lie flat seats to and from Portugal every winter and sometimes we do Mexico in winters.
Do you do any charitable work? Give to charities? Train and guide people along the journey or is it all about your success?
Asking for friend.
1988 was a good year. Entry level teachers made 18K/y. Midwest Mec E made 30K/y.
SF vp engineering : 60K/80K/y. In 1988 car payments was 12.5%/y. After Xmas 1989 many small businesses shut down.
1995 was a great entry point. In the Sixties Palos Verdes CA house cost 100K. After the Six Days War, when the Suez canal was shut down, commodities prices popped up, until the oil glut of the 1980’s and the 1990’s. In the 70’s, after the aircraft industry collapse, prices deflated. Prop 13 constricted transaction (like today). The S/L crisis was the next earthquake. It took 30 years between the Six Days War, the 70’s inflation, the aircraft industry collapse after Vietnam, and the S/L crisis, which reduced the number of banks from 11,000 to 4,500 ==> until nadir in 1995.
A salary of $18,000 (or $1500) a month compared to a mortgage and property tax and insurance of monthly around $1300 for a $150,000 home. Would need more income for a household annual income of at least $40,000 to not be house poor.
I heard a podcast host mention that Sahm was on CNBC or somewhere on TV and NOW she is claiming that her SAHM rule triggered but it was a false positive. WHAT A SCAM headline, eh?
The US gov is suing Googl for unlawfully domination of the search engine, gouging
the guppies, feasting on them and raising ads prices above market prices. Googl needs Kamala Harris more than she needs them. She will be able to squeeze the Indian high tech mafia, doubling her coffer, beating Trump crumbs
The fed can bid up the price of housing faster than housing can be built.
A 4.5% compounding rate is higher than the average inflation rate between 2000 and 2024. During the S/L crisis, between 1988 and 1995, RE prices deflation accelerated hitting nadir in 1995. C/S doesn’t show it.
For decades the Fed controlled only the front end of the yield curve. After Oct 2008 the Fed became more powerful. It controlled both the front end and the long duration. The Fed suppresses mortgage rates for almost two decades. Before Oct 2008 mortgage payments were glued to C/S. Since Oct 2008 the diverged until recently. Since Oct 2008 gov interest rates were negative. Now they are normal.
What is the equilibrium level or where does reach steady state ? A 30 yr mortgage rate of 5.5% with annual inflation rate of 2.75% ?
Median housing price going from $150,000 to $708,000 in 36 years equates to about a 4.5% average annual appreciate rate.
I recall Professor Shiller stating that housing historically has appreciated about 4% annually for the last 125 years.
Local zoning rules that prevent development of denser more affordable housing also contribute. As do transportation agencies that refuse to increase road construction because of nonsense about induced demand. “If we build roads, people will just use them. So we shouldn’t build roads.” FML.
With no new roads and no new housing in built areas, rising populations force prices up.
There’s really no alternative. Interest rates just made it easier to raise prices faster.
depending on AREA, housing is still affordable
lots deals out there
my qx. is why I’ve had 100 calls from low ballers if housing is cheap(according to them)
my highest priced offer was $60k lower(on $300k) home
than I’m in escrow on
not a fixer upper – but they seem to think every home is
The Case Shiller Index is interesting because it rarely ever goes down. The crash in 2022 was the last time since 2013 that the index has gone down.
Yes, I did say crash. For those waiting for the “crash”, it already happened in 2022.
Prices will go parabolic once the Fed cuts rates. Buy now while prices are still cheap.
I’m not sure if they’ll go parabolic especially if the 30 year mortgage rate steadies around 5.5%.
It depends on affordability standards and not pushing to a level of extreme house poor.
Maybe enough people have enough money for a downpayment to make the mortgage payments (plus HOA assessment, property insurance and property tax) sustainable by being no more than 35% of household income.
That is why sometimes home price to income ratio may not be as much a factor if people can make a large enough downpayment, and also if they can buy 4 discount points to lower the mortgage rate by 1% (which is like lowering the home price by 10%).
C/S is fake positively biased. A few pairs buy: 150,000/ sell: 800,000, which are rare, skew up the whole chart. C/S is a proof that RE prices never goes down. If the Fed cut rates, below the inflation rates, both RE prices and rent might rise a little — not at the same pace — but deflate in real terms. Since Jan 2020 rent is closer than price to the CPI. That’s is very important. Price deflation has a long way to go.Currently the Price/Rent ratio is too high. We don’t know how low it will go.
2024-1988=36 years.
At 4.5% inflation in homes, you get 1.045^36=4.962.
150000*4.962=740000
Thus homes have increased at a rate of 4.5% which is above the official rate the fed wanted but it probably in line with the realistic rate of inflation of everything over that time.
Also, there must be a math error in the 1988 home or something not stated. Mish writes the 150K home at 10.38% interest has a 1076 payment. But a 150K loan at 10.38% interest has 15570 in interest payments alone. A 1076 payment a month only generates 12912 payments which means that could never be the loan payment because you’d be falling behind. If there is an assumption of 20% down, the loan would be 120K which would have 12456 in interest alone which would still eat up basically 100% of the the monthly payments (ie interest only loan). So something seems amiss here.
Thus homes have increased at a rate of 4.5% which is above the official rate the fed wanted but it probably in line with the realistic rate of inflation of everything over that time.
and how is anyone okay with this? at 4.5% inflation, how long until houses are a billion dollars?
So, if the annual inflation rate of 4.5% continues consistently, it would take approximately 164 years from 2024 for houses to reach $1 billion in value.
so in like 5 to 6 generations(based on 25-30 years), we’ll have the average 900 sqft apartment worth a billion dollars. wonderful. just wonderful.
This is great, you did the math. Now, if we were to use the “official” inflation or inflation target, what would the same math be? Oh, look, I can do it to: 1.02^36 = 2.04. So 150,000*2.04 = 306,000.
The difference is staggering. So to Adam’s point to you, how is this okay? Answer: It’s not and anyone not already owning a home knows it. And anyone not owning a home in “the Bay Area” (JoJo) or elsewhere where the ratios are even higher is ANGRY A.F.
Papa Dave can say we should stop complaining about it and just somehow profit from it but if your family happens to be from America but not from the Bay Area, DC, Seattle, Phoenix, etc, aka flyover country, well you just didn’t get picked at the dance. Disequal, perhaps unfair and certainly manipulated outcomes produced by unelected banksters creates a large amount of anger and real-life disparities. There will always be differences but when the scales are leaned on by fat-thumbed central planners who contort higher math with fancy differential equations to justify simpleton criminal grift at the Fed or elsewhere, well, you’re gonna create unrest and, so far it’s held. What happens when unrest in America is no longer containable all because you pushed the envelope of greed at the central bank and by a large swath of the population that just happened to participate? Because, make no mistake, most folks that have been enriched played no active part in the enrichment despite what they may think. They happened to need a home and happened to either already hail from the Enrichment Zone or follow a job/spouse there.
Those real people left behind are going to be unhappy.
Personal Example: I could have moved to Seattle from the upper midwest in the 90’s but my family is here so I remained. Without doing one other thing different, that’s about a $2 Million loss on my part. My mother passed at 60 so I’m glad I stayed but $2 M is a tough pill to swallow when all the coworkers there are wealthy without doing one active thing differently. Prang, enrichment.
So pay attention to the math–4.962 > 200% of 2.04, a HUGE HUGE difference.
What Mish is basically saying is that housing has outpaced their official inflation target 250 basis points for 36 consecutive years. Gee, what could go wrong?
The official rate is 2%, but do you believe that rate to be correct?
Did your own salary increase by 2% since the mid 90s until today or did it increase by a larger amount than 2%? For example most companies give a standard 3% COLA raise if you are doing the same job year after year. 3% still not 4.5% but it’s larger than 2% and if you actually improved your job standing in the last 30 years you might well have increased over 4.5% salary wise.
As for living in the mid west or Seattle during the last 30 years, that was your choice. That’s not the Feds problem. Real estate prices as you know (or should know) is local (location, location, location). Some areas rise, some fall, some stagnate. Expecting them all to move in lock step is insane and that will never happen even if we had 0% inflation over 30 years.
My salary rarely moved above the rate of inflation for the last 20 years because I did not move. I understand your point, my point was that no one in Seattle did one thing differently or actively to warrant a house moving from 450,000 to 900,000 from 2020 to 2024. They made more by owning a home than their damn job over the same period. Make that make sense in aggregate. And it’s not just Seattle, it’s many areas in America.
It is the Fed’s job to contain inflation and they did not do that, they dismissed it as transitory.
They held rates at 0 for all but a couple months of the entire Barack Obama presidency. They sat on rates again in the pandemicfor far too long when Congress threw 3 large fiscal packages at the economy.
My point was that lots of folks have been enriched by bad Fed policy and others are being squashed by it and the simmering unrest is gonna blow when you least expect it, and, once blown, will be not easily contained. Lots of folks that have been enriched passively are gonna find out that those gains won’t hold when that unrest comes to their doorstep. Don’t be surprised. My nephew lives with me and the hopelessness in their generation is real. The Baby Boomers need to look more in the mirror and less at their 401k or house-value statements as to the cause of the generational angst.
Ha! That house would be about 2+ million here in the SF Bay Area.
I don’t see what the problem is. Housing is SUPPOSED to be an investment, no? And in today’s world, investments are only allowed to go up.
That’s why buying a house gets you mortgage interest deductions and when you sell, basis increases and capital gains deductions..
So comparable prices have grown 370% while the social security wage base has grown from 45K to 168K or 273%.
And your point is?
Housing cost are going up faster than wages, but we already knew that.
I agree as that means there needs to be supplemental income and wealth in addition to wages to keep up with this.
Put money in a S&P 500 index fund while savings for a +25% downpayment for a home. That is one option, though I realize it may not be that feasible for some or many.
> My Thoughts
– The Fed has grossly distorted the housing market and no fix is in sight. > The Fed, in so many ways and Including The States and Banks as well, have definitely distorted the housing markets, I would agree with that! >> Fixing it is not their job, as they broke it. You need to change Leadership (Top/Down Approach) in its near entirety unfortunately, or slowly fade away, and be forgotten.
– Case-Shiller measures repeat sales of the same home over time. > The Point? Look for “Local Data” and “Most Recent” and compare CS of course if you would like, or anyone/anyplace else as well. >> If you’re selling and buying, everything else is only drama anyway.
– This is a mess entirely of the Fed’s making. > Who’s the Boss? Fire them ALL, and then Look in the Mirror!
– Only the newly rich. > Good for Them
– those who just sold their previous house, > Can afford to buy was the idea behind it!
– All-cash sales accounted for 28% of purchase transactions in June. > Good for Them!
– More Negative Revisions > Precisely.
Yep, all assets were inflated.
CPI over 20 years has some but not as much inflation thanks to technology, productivity, and outsourcing (overseas).
ZIRP and govt spending distorted markets; reckoning is now underway (layoffs, earnings/stock hits, bankruptcies of weak players). Reckoning in 2008 didn’t happen thanks to bailouts ($22B for AIG to start).
Will the pendulum swung from 2020 continue? Will we tax the rich and redistribute gains (unfortunately, piss the gains away to DNC cronies). Probably …
All assets were inflated correct, but this is nothing new, as I have watched and took advantage of it through the years. My first home purchase was in the 80’s. A 2 BR Condo. That ended up giving me a nice rental for years, as I bought more and rented them out as well. Good years brought me lots of assets on my way to my forever Home, where I live today!
ZIRP and Government Blowing Taxpayers Money on other Countries, BS Climate Agendas for personal gain, and playing God with covert underground science projects with who knows what at this point. That, along with picking people based on everything BUT MERIT! What gender, skin color, hair color, beliefs, opinions, etc. should have absolutely nothing to do with who gets a job, or benefits, or tax breaks etc. it’s all a bunch of Vote Seeking, Personal Agenda, Market Manipulation, Favors, Nepotism, and help me where I left many others out from exhaustion…
– Will the pendulum swung from 2020 continue? Will we tax the rich and redistribute gains (unfortunately, piss the gains away to DNC cronies). Probably …
> Good questions, and hopefully some correct answers along the way. The rich are heavily tied in with Government and have many of the same agendas unfortunately. A complete overhaul is required to fix that. If Trump wins I am looking for exactly that to take place, but nobody else is an outsider, wanting to fix anything, so he could be our last shot perhaps?
Unfortunately it’s the same answer for pissing gains away. The money goes to other Countries, their cronies and players allowed to play the game. With one party rule, it’s nearly impossible to budge things to a better case scenario. You almost require one party rule in the other direction to fix it, but then you get the reverse perhaps.
I think a total collapse of the rulers, yes I said it, at the top needs to occur. We are talking thousands OUT ASAP, if this ship is to be righted. We don’t have a lot of time either. They are pissing away our Military, Schools, Hospitals, etc. or as I like to say, causing Chaos and Panic. This doesn’t end well for anyone… most of all, the little guy (Us!).
When even small, no frills working class homes are beyond what many millions can afford, you’ve got a serious problem.
Not sure … MSM touts median home and median rent … ok, how about lowest 10%ile home/row-house? At 30-100 miles outside big city, plenty of $250K 1200 sq ft condos to be had.
https://www.redfin.com/TX/Dallas/12921-Abrams-Rd-75243/unit-408/home/31109563
Reality is, thanks to Fed/govt spending, living standards (aka bread/housing) are falling… although Netflix (Circus/entertainment) is cheap.
Condos aren’t single family homes, they are terrible investments and provide a terrible quality of life. Shared walls, shared leaks, elevators, HOA fees, and assessments.
In CA. For example, that’s with a Minimum Wage of $41,600.00 Per person!!
Question:
1) Is housing a bubble ready to pop?
2) Or, was it a historically undervalued asset now just reaching parity with alternatives?
Of course the answer depends on the T&Cs within the situation.
If Freddie/Fannie remains backing up mortgages and money is relatively abundant.
Then, I’ll pick 2 given the price of renting (make sure to buy for >3-5 years to cover closing costs).
If the gov’t (Freddie/Fannie) gets out of the market (like UK, Canada), I’ll pick 1 and expect a crash where no one can get a 10x leverage loan leading prop values to drop 20-30%. Of course, this is a thought experiment .. gov’t simply cannot depart the housing (or apparently student loan, or medical care, or … ) business.
They can get out, they just never will, lest prices will be cut in half.
While they still have a choice
The correlation of disposal income and residential real estate is near perfect over the long run. Today housing prices are way out of line with disposable income so something will change. Most likely housing prices will either fall or fail to appreciate.
The long run appreciation of residential real estate is 1.5 percentages above inflation over the period. This house appreciated at a 4.4% rate. Just about right indicating the real return to capital for residential real estate is 1.5%.
Will an Appropriate “correction” in the housing market only happen with a virtual implosion of the greater economy?
Not with 10X (to 30X) leverage loans backing it up. Maybe stabilize or go +/-5% per year for a while….
There are only two options. Blow an even bigger bubble, or let it pop. There is no stabilizing
As a homeowner, I say thank you FBJ, for my +52.4 Percent.
(close to ~50% gains on SP500 but my house is levered 10:1, my portfolio is 80/20).
I didn’t even vote for him. That’s called: “I got mine; you get yours!”
Did you gain from your home appreciation if you don’t sell? Where would you live?
You can borrow against your home equity or reverse mortgage (although expensive … maybe have your kids make a competing offer).
Or, sell and move to low-cost retirement area (no decent jobs; hence low-cost) …unused funds waiting in case of 24-hour care.
Voters in the USA live in fantasy and probably always will. No matter how obvious it is that the U.S. is an oligarchy, not a democracy, the ardent pipe dreams of a new face in the White House go to their heads every four years.
It can only be explained by a combination of intellectual ignorance, the acceptance of propaganda, and the embrace of illusions.
An analogy is apropos. In the small town and vicinity where I live, there are about 10 pot shops where pipe dreams are dispensed. As The Platters sang long ago, “when your heart’s on fire, you must realize smoke gets in your eyes.” But few realize it.
Smoke? What smoke?
Quadrennially, this love affair with the presidential candidates burns hot and heavy despite their records, as if they were heart throbs of stage and screen, straight from Broadway or Hollywood deeply concerned for the public’s welfare.
Americans love actors, and the presidential candidates are of course actors, following the directions of the fat cats who produce their shows. As the grand opening of election day approaches, the supine public is aroused to a fanatical frenzy of excitement from its years’-long sleep by a mass media that spews out drivel to deceive. It could be said that what the media propagandists digest, the public eats.
https://off-guardian.org/2024/08/10/the-ardent-pipe-dreams-of-american-voters/
Small town, Ten Pot Shops !? You in PNW? (oregon/wash).
Minimal work, no kids, just hike, smoke, and hang….
A massive deflationary depression for a decade will fix this.
All the new immigrants during the Biden – Harris administration is not going to make that happen. A lot more new arrivals need housing, food, healthcare, etc.
No, its the fault of the FED and both political parties for believing in the delusion of neo-classical economic theory and the complete misnomer known as “free” market theoretics which isn’t free at all, but is the chaos of alternately goosed and strangled financial dominance. In the human universe there is no such thing as complete freedom, only the freedom amongst known and ENFORCED barriers. Its why you can’t walk into a theater and yell “Fire!” Change the monetary paradigm from Debt Only with a 50% Discount/Rebate policy at retail sale and tax “greedflation” at a rate of 100% and you’ll end inflation forever while enabling people to buy a $500k house for $125k. (Thats with a 50% gift of interest to the bank on the $250k price after retail sale in return for a 50%reduction of the loan.)
No, it’s the fault of the banksters who created the Fed in the first place and the leperous politicians who passed the legislation in December 1913 when most of Congress was away for the holidays. And Woodrow Wilson’s fault for signing it into law. Worst president ever.
If the Fed did not exist, delusional neo-classical economic theory wouldn’t matter because there would not be a centralization of power through which it could make the rest of us miserable.
And the easier way to change the monetary paradigm is to just End the Fed. Discount/rebate policy and inflation tax is just goofy and creates a reason for another government bureaucracy to exist in perpetuity.
Ending the FED doesn’t change the monetary paradigm which the Banks will still wield. A 50% Discount/Rebate policy DOES.
So if we end the Fed and the *market* sets the price of money, which is both democratic and, to notaname’s point, anarchy (which means no ruleRs, not no rules), that wouldn’t change the monetary paradigm? Decentralizing the determination of the price of money doesn’t change the current paradigm which is *centralization of the setting of interest rates*?
And your wonky solution of having a central authority oversee discounting and rebating is better? Really? Do you not see that the centralization of power is how we got here in the first place?
WTF you talk’n about … complete freedom is anarchy and jungle-rule … not realistic since cave-man days.
Greedflation … did you learn that from Pocahontas? (Sen Warren). Can you supply a definition since google lacks one but has plenty of hits.
Greed is AKA maximizing return .. something most people do everyday. Yes, companies analyze the crap out of prices and earn outsized gains during inflation chaos … it’s one of the many reasons why INFLATION IS SO DETRIMENTAL.
You misunderstood my first three sentences apparently. I wasn’t advocating chaos, simply pointing out that the economy under the current monetary paradigm is inherently chaotic and so unstable.
ok … thanks. I actually advocate for chaos (within boundaries).
Freedom is chaotic and messy (including crashes/manias) – it’s a feature.
Iron Fist rule is orderly, brutal, and I’d say anti-humanist, anti-creative.
Way too much here for quick blog responses … .have a nice day! 🙂
I am rich, no, I sold my house in The Covid Lockdown 2020 Oct. shit missed my million.
Sorry Terry … we make our decisions with facts at hand sobeit.
Hope you put some proceeds into Gold.
The crazy thing about RE gains is the leverage … no one questions 10x. If we lose, at least you can live in the loss … plus the loss is actually the banks since my equity is zilch. Dang, what a racket.
Priced in gold, the house is cheaper than it was in 1988. By 13% if my math is correct.
In 1988 it took 337oz of gold to buy that house.
Today it takes 295 Oz of gold to buy that house.
A fine example of (1) the destruction of purchasing power orchestrated by the FED, but cheered on by every administration and Congress and (2) how gold tracks the destruction of purchasing power over long periods of time and (3) why I’ll never sell my gold and continue to buy more.
Excellent point. The same can be said of petrol/gas when measured in gold. Both reflect the depreciation of the dollar and all fiat currencies against the only real money – gold.
“The only real money is gold. Everything else is credit”. – JP Morgan
Price to income is the only measure that matters to regular people imo.
Same can be applied to Bitcoin. To buy a median priced home in the USA it took
2016: 664 Bitcoins
2020: 45 Bitcoins
2024: 6 Bitcoins (approximate)
Your math sorry is missing (a) the leverage in typical home bought, which amplifies the gain tremendously in own home versus gold, and much more if the debt taken was also long duration low fixed interest rate, (and one is not able to buy gold w/leverage but surely a house), (b) you also do not account for potential gains obtained from an another sensible asset(s) that could have hence also been possibly bought using the remaining unused amount that need not be put in the levered house post the needed down payment, and lastly, (c) you did not account for taxation at the time of exit on gains from gold versus potentially zero or lower taxes on sale of a primary home (no taxes on primary home sale gains of up to $250k single filer/$500k married filer).