People who want a home but cannot afford one keep watching home prices soar out of sight. The Fed says this isn’t inflation. 
Measuring Prices
Case-Shiller measures the price of the same home over time.
Median and average prices have no consistency on number of rooms, square footage, location, amenities, lot size, or quality of construction.
Median and average price are also skewed by a slowing number of transactions heavily influenced by price-insensitive buyers.
Although median price is a poor measure, the rising direction is consistent with Case-Shiller reporting.
The problem with Case-Shiller is timeliness. We are heading into September and Case-Shiller is just reporting June data.
And that data represents transactions from a couple months prior.
Year-Over-Year Index Measures
The average person will look at the above charts and see inflation.
Every member of the Fed plus the typical economist will look at those charts and not see inflation because they have been trained not to see it.
In the blind eyes of the Fed and economists in general, home prices are not a consumer expense, nor are property taxes on home prices.
To this group of brainwashed economists only consumer inflation matters, and home prices are a capital expense, not a consumer expense.
Thus, home prices do not count as inflation and the Fed ignores them.
Fed Mess of Its Own Making
Everyone who had a mortgage in 2021, refinanced at 3 percent putting extra money in their pocket monthly for the life of the mortgage.
This adds to price pressure on goods and services.
I have commented several times before that the Fed has no solution to the mess it made other than time. So the Fed doesn’t talk about it.
Fed Does Not Seek or Welcome Further Labor Market Cooling
Meanwhile, please note The Fed Does Not Seek or Welcome Further Labor Market Cooling
On August 23, I noted the market is cheering the Jerome Powell’s self congratulatory and market friendly speech at Jackson Hole.
Powell had praise for how the Fed reduced inflation without bringing too much misery to unemployment.
Instead of blaming monetary and fiscal policy for inflation, Powell blamed supply chains and energy.
“Your mileage may vary,” said Powell. Indeed. Especially those stuck renting and looking to buy a house.
I added these paragraphs
Fed Mess of Its Own Making
Everyone who had a mortgage in 2021 refinanced at 3 percent putting extra money in their pocket monthly for the life of the mortgage.
This adds to price pressure on goods and services.
I have commented several times before that the Fed has no solution to the mess it made other than time. So it doesn’t talk about it.
During crises it doesn’t really matter. No matter how you slice it, for the vast majority of homeowners, things are better now. It is also impossible to say if the money saved was really all spent or not. Some of it certainly was but some also might not have been and maybe have gone to paying down debt or other things. Some maybe sitting idle in checking accounts.
Even if they spent all the money their monthly payment is lower so they have extra money to spend monthly.
Bullshit!
I am old. People will merge their households into multigenerational, if their jobs can allow that. We can, and it makes perfect sense.
the FED has only one mandate. nothing to do with house prices or inflation…….or unemployment. to keep their owners solvent at any cost. their owners are public info. C and JPM own 70% of fedresny. where all the action is.
[…] Yesterday, I noted Case-Shiller Home Price Index Hits Another New Record High […]
How to include housing in the CPI has been debated by economists ad nauseam. Nothing prevents Mish from publishing here his own CPI using a version of the pre-1983 BLS approach. We all know CPI inflation will be higher and more volatile. But by how much?
the fed doesn’t care about house prices or unemployment. they have only one mandate. to keep their owners solvent. at all costs. they are owned by the NYC money center banks. fedresny publishes their ownership. it’s not a secret.
If success is a trap, isn’t that where we all want to be, trapped in success? Maybe not. In response to my recent essay for subscribers, China Adrift: Now Is the Winter of Our Discontent, several readers asked why China couldn’t just continue its astounding boost phase of growth without pause.
The short answer is success is a trap: the policies that generated the amazing growth of the boost phase are naturally viewed as the keys to everyone’s dream, permanent high growth. But those policies only worked like magic in a particular set of circumstances in a particular moment of history, and while no one is noticing, the great success changes the circumstances and the moment in history passes.
As a result of the great success of the policies, circumstances change such that the policies no longer work. It’s ironic, isn’t it? The policies that optimized the harvest of the all the low-hanging fruit generated rapid, sustained growth. But the very success of the policies changes the circumstances that enabled rapid growth by stripping the tree of fruit.
Now that circumstances have changed, the policies no longer generate growth, they generate systemic risk, risks that are ignored in the belief that the policies will restart growth if only we do more of what worked in the past.
https://charleshughsmith.substack.com/p/success-is-a-trap
Money certain. Is that a truish or something we can only wish for?
I live in the metro detroit area and get Zillow updates daily for my local area. Anecdotally I am seeing less frenzied buying. Home prices are still overvalued but prices seem to have stabilized at a higher plateu. I am seeing homes on the market alot longer and many price reductions. Not seeing bidding wars either. I also notice a lot of the new listing’s are of lessor quality needing updates. A listing with a “nice” home not needing updates still sell quickly.
Case Schiller ATH
Gold ATH
Stocks ATH
CPI ATH
Fed debt/deficits/borrowing ATH
Consumer debt ATH
What next? Let’s cut rates! What’s the worst that could happen?
This begins another round of inflation. Except this time will be much more painful, as 70% of US population is already at their limit I.e. out of money.
We’ve had a permanent increase in housing prices. That will decrease the standard of living going forward.
C/S pairs : buy 1998/sell 2024, or buy 2012/sell 2024 have a lot of spare. They might do whatever to close a deal. Since there are only a few of them, sellers will be more elastic if/when SPY will turn around and osc for years. Again, osc for years. Demand might be persistently weak Vacancies are homeowners worst enemy. Gen alpha and zoomers might frustrate homeowners for years, bc time and wages are on their side. The boomers will be in pain.
Supply chains were certainly a problem. Impossible to think it was 100% the Fed’s fault. Contrary to popular theories, the Fed doesn’t control fiscal policy, which is mainly in the purview of Congress. That being said, the Fed made a mistake in waiting too long to hike. That cycle should have started at least 6 months earlier.
JP tried to raise rates until Sept 2018, but failed. RRP sucked liquidity a year before the Fed raised rates.
The OER northeast pressure cooker might release steam if SPY will turn around in 2024 and in 2025. Banks support RE bc RE has collateral. Since RE failed in repetitions since 2008 banks might support industries, including small innovation industry, for the first time in 100 years.
this sums a lot up: “My biggest practical problem was that I didn’t earn enough money to live on, but I found a budget-conscious lifestyle renting from hippies and then not paying rent for a year while occasionally working at a pizza restaurant and begging my codependent parents for money.”
Having ARTIFICIAL/forced repriced debt at near-zero interest rates (effectively neutralizing risk) and long duration, the Fed created the mother-bubble of all time.
Present value is a bitch at close-to-zero interest rates, locked in for 30 years.
If interest rates increase, the present value of those low-interest-rate mortgages (to the holder) plummets, while increasing (to the borrower).
If interest rates decrease, the present value of low-interest-rate mortgages increases for the holder–but at 3%, there ain’t much room. The borrower, of course, refinances.
The result: The Fed can’t win. It created the classic lose-lose. Housing prices inflated, as did the amount being borrowed. The mother-bubble is vast, and the mortgage toilet can’t be flushed.
And the really bad news. It’s not just home mortgages. IT is every debt instrument that locked in interest rates for long durations. You bought 30-yr bonds at 3%? 2022 + 30 = 2052
The lesson, of course, is obvious. Don’t f*(k with interest rates, Let the market do it.
According to that wolf guy there are ‘millions’ of shadow inventory homes just waiting to go on the market. I guess when you live in San Fran (worst housing market in the country for the last 10 years) you become delusional.
He is nit wrong though. The inventory constraints are artificial which means they are temporary as well.
Strongly disagree with his ‘thesis’ which is that millions of homes are vacant and have been kept off the market for years because the owners want to get even higher prices for them. It’s a bizarre theory to explain the lack of inventory.
Yeah I read his stuff and chuckle. The only explanation I can think of is that he must think that in the areas where there has been a decline (like his SF) that there are under water home owners who want to sell but won’t because they don’t want to take a loss. Similar to how many who own stocks refuse to take a loss and wait for the price to get them back to even before they sell.
I think its like the myth of sidelined cash in the stock market. Even if prices rise, and more homes come up for sale, everyone selling must themselves be vacating the home and unless they are moving in with family or living in a van by the river will then also be right back in the market clamoring for a house. So the demand won’t really change, all that will change is who is owning and who isn’t. The only way this isn’t true is if there are oodles of 2nd and 3rd homes that are vacation homes that are empty that people want to unload and I don’t think there are that many of those.
Keep in mind… Wolf thinks EVs are awesome… and if you dare to point out all the negatives (including what the source of power generation is for these filthy contraptions)…. he will delete your comment and ban you.
Jeff Green and Wolf are engaged in an endless circle jerk
millions of homes are off the market, because BlackRock and others have turned them into rentals..
I think it’s far more complicated than that, and I have a lot to lose if I am correct. I smelled a rat in 2005 and I smell a different rat now, but just as stinky.
Nobody said anything about vacant.
Wolf talks about vacant houses *all the time*. Most recently just 5 days ago: https://wolfstreet.com/2024/08/22/here-comes-the-inventory-of-vacant-homes-while-buyers-strike-continues-despite-drop-in-mortgage-rates/
No housing shortage. Just a shortage of affordable homes…
https://www.sciencedaily.com/releases/2024/06/240617173457.htm
If interest rates fall below what these folks locked in at a few years ago … then some of this inventory will hit the market.
Given the inflation situation … tough to see interest rates dropping to those levels without triggering hyperinflation
People were claiming there was ‘ghost inventory’ after the ’08 crash around ’10 and that more homes would flood the market causing a second wave down. There was no ghost inventory then and no ghost inventory now and single family homes are going nowhere but higher in price.
The creation of the Federal Reserve in 1913 was , and continues to be the worst/biggest mistake this country has ever committed ! Nothing else comes close!
Let’s make a top 10 mistake list, agree Fed is top 3.
Also,
More?
and … Freddie/Fannie creation in 1970
(maybe look at only economic mistakes … skipping all the war mistakes)
National Security Act of 1947, created NSA, (codified they already existed) created CIA, beginning of the end for the Old USA, welcome to the security state, all crimes are classified, let the looting begin…..
Ok … let’s add consolidation into DNI too … maybe HLS also?
These so-called “heads” (DNI and HLS) make sense in the abstract but they don’t seem able to control their underlying entrenched bureaucracies. Of course, congress created them so there’s the root!
Only having 9 Supreme Court justices.
obamacare was really a mediCAIDE for all plan. the 2 wings of uniparty all love it………red and blue hats. it is kind of nice not paying a dime for my healthcare………since i moved back to my little hometown 3 years ago. of course someone is paying, inclduding me with debauched currency…………
It’s been awesome for these guys though https://fasteddynz.substack.com/p/who-runs-the-world
The inelastic components of the CPI include four OER : northeast, midwest, south and the west. The CPI is fake. Mish never brought the inelastic list back.
cpi and gdp are garbage. waste of brain cells to obsess about.
My wife just bitched me out for 20 minutes that we have to run out and buy a house *now* before Kamala’s plan to give everyone $25,000 to buy a house prices us out of the market. And I just think to myself, how many tens of millions of other wives are doing this now, and are not going to let it go? Expect available inventory to crash and prices to spike over the coming months as this panicked, “get ahead of the jonses before it’s too late!” rhetoric lights the USA on fire. Great time to cut rates, Jerome, to pour even more fuel on this bonfire. You’re clearly a genius, just like Kamala.
Inventory is so constrained in the Northeast that I don’t see things normalizing for years. So much pent up demand. Prices up by double digits in the last year. Tax credits and lower interest rates will just add fuel to the fire.
Women…
LOL!!!!!
i love women. everything about them. amerikan boomer men seem so gay. and emasculated.
Kamala plans to build 3,000,000 housing units in the flyover areas and the suburbs.
She will give homebuyers a 25,000 tax credit, instead of renewing Trump tax credit. Suburban women might not vote for Obama/ Hakeem housing plans. Female zoomers are hooked on abortion issues and the first female president, but male zoomers don’t care. Kamala might surf on a Biden’s ceasefire, beef up the police and the military, America strong, pro Israel, tough on crime and closing the border, knocking off Trump.
You don’t need to be too concerned about Kami’s plan for $25,000 because the prices are so high they won’t be able to afford the monthly payments including property taxes and property insurance.
I agree. With current house prices, I think 25K is too small a sum, to make a difference.
yup. add a zero and it would move the needle. the tax code already has so many great freebies for certain industries. it’s the rule book for the board game of life.
our family concluded the opposite. been a re investor for many decades……….and also a tenant for half my adult life. renting is much easier imho. way more quality of life for my lifestyle anyway. i grew up building and mainting houses. it gets old. even the quality stuff i learned, slate roofs and brownstone restorations……….the modern houses post ww2 are mostly garbage.
Rising home prices doesn’t equal inflation – speaks volumes, Mike. Perhaps we’ll only know what a house is truly “worth” if mortgages were banned and you had to pay cash?
A less drastic would be to just let the market define rates and risk. Loan rates in some eastern European countries are much higher.
Knowing what a house is worth only requires living in a free country.
Then, there would be NO privileged backmarkers printing dollars to bail out idiot “home-owners” nor lenders. Some may still borrow to buy a house, but they’d have to pay it back in non-debased specie. And the lenders would all know that there was no possibility of a bailout, no matter what.
In addition, there would be no restriction on anyone else building and offering whatever house they wanted to, anywhere they wanted to, as competition for the house whose value is in question. There will NEVER be a way to know the correct price of an object, unless all potential competitors are free to compete freely. That’s about as 101 as basic economics get. Free competition is an absolute necessity for determining real value. Take that away, and what you are left with is what we currently have: Totalitarian five year planners arbitrarily making up / “managing” supply and prices, which will ALWAYS and everywhere be nothing other than completely, 100% dead wrong. All in order to ensure retarded, unproductive, useless, worthless, stupid little them and their social circle of utter nothing dregs, can cluelessly sit around and pretend the mold in their “home” walls are somehow “making” them money out of the blue. While more productive and intelligent beings having to pay for the nonsense, which in turn ensures those guys will forever be less and less able to compete against people and firms from freer societies like China and Russia.
I’m stunned people will down vote this comment. Economics according to Keynes has a lot to answer for.
Free competition is an absolute necessity for determining real value.
“Free competition is an absolute necessity for determining real value.”
And; importantly: Free competition REQUIRES unlimited; and unmanipulated; freedom, by ALL potential suppliers, to SUPPLY, as well as to demand.
Just saying “we’re a free market” because, like, you know, like, uhh? you know, we can, like, bid and, like, stuff and, like, “the markets” and,,like we’re, like,the free world and,like huhh???; is exactly as singularly retarded as that sentence sounds.
sounds like a fantasy football idea or a dungeons and dragons fantasy game. the real world is just not so.
The real world is nowhere currently perfectly so. But it is so to varying degrees in different places.More so in comparatively freer countries like China, than in less free ones like Argentina and the US. Hence why freer productive people and organizations in China, are can so easily out compete less free people and organizations in the latter dystopias.
My property taxes went up 50% past couple years. Now i just received an updated appraisal and intent to raise them more. I have straight up had it with this crap!
I don’t know where you live that your taxes go up 50% in two years. Our assessed value has gone up about 50% but our taxes have barely increased.
Property taxes go up with inflation. There are some places where they haven’t caught up with inflation yet but they will.
Not in California.
BS. new owners get screwed by the boomers. the most self absorbed generation in world history.
Unless you live in a state where they are capped like California with Prop 13 then they never catch up.
Happens quite often here in Illinois
Illinois, probably.
This is real. I am a landlord and my property taxes have gone up a lot. Insurance costs have gone up even more. I just love it when everyone complains about rents are so high. If you buy a house today with an inflated price at a 6.5% mortgage, with insurance very high, property management costs up, supplies up, labor up, … people will cry about high rent even if you’re in the red.
Did the value of the home also go up? Therefore you have more wealth?
I hear you. Our very boring $500k house in Maine was re-appraised at $1.1 million last year. Taxes up more that 100%.
Madness.
Can you fight the assessment? Here in Florida you can.
Geico pig with spinner leaning out the car window … Its all fun and games until …
Mish, OER is the best metric the Fed has to work with and acknowledges its flaws. You complain a lot about it but don’t offer a workable solution, my friend.
I’m reasonably certain he’s written blog posts about how things would be measured if one included different metrics other than OER into the inflation calculation because, if one actually added it in properly the inflation numbers would all have been significantly higher leading the Fed to grudgingly keep interest rates much higher for much longer historically and going forward and they don’t want to do that. That’s the key–the Fed does what it wants as does the government to whom they feed their underpriced money.
Let them eat cake was the most prescient comment ever, if only we could mete out similar punishment to those expressing similar sentiment in 2024.
Supply of home for sale is high, but demand is low. A few homes — bought in 2011/ sold in 2024, or bought in 2004/ sold in 2024 — skew up C/S chart. C/S is fake positively biased.
Price elasticity is hard at work. In single-family housing, supply (owners) tends to set the asking price. Demand (buyers) might make a lower offer, but until more sellers accept those offers, prices will stay high, with fewer sales.
yup. i bought over a dozen 2 families in 2011 lows at 20% caprates. sold them in 2022. thank heavens.
I don’t get it, prices have been clearly slipping all along the gulf for months and even California has been showing pricing weakness. Florida is in downright freefall, particularly the condos. Is Case/Schiller even less useful now than before?
Case Shiller lags by about 5 months
it’s garbage numbers for people who have been investing for decades. nothing like real world r/e experience.
Gulf Coast, Texas, Boise and San Fran. are really the only places where housing went bust. If you live in those areas, it’s hard to imagine there are places with hot housing markets. There actually was a ‘bust’ in Connecticut but it lasted about 2 months in 2022.
You speak in past tense, as if the Fed tightening cycle is something that is behind us, and as if the massive yield curve irregularities (to put it mildly) are behind us as well.
I live in Houston Texas and prices have been flat to slightly up for two years. Definitely not slipping. Fresh data as of this month, no Case Shiller lag here.
Hyper inflation does that every time.
I appreciate the sentiment, but what is the solution?
Higher rates crimp rental supply, and shelter is one of life’s necessities. The shift to increasing remote work is incrementally increasing demand for residential square footage (spend more time at home, want a bigger/nicer home). We have very low vacancy rates nationally (per Census data). Even in light of high prices, with demographics as they are, there is A TON of wealth that can/will be passed down…perhaps as parental down payment assistance.
The only answer that I see is to add supply…but the Fed kills rental supply with higher rates is therefore counter-productive.
Everyone who had a mortgage before refinanced at 3% putting extra money in their pocket monthly for the life of the mortgage.
This adds to price pressure on goods and services.
I have commented several times before that the Fed has no solution to the mess it made. So it doesn’t talk about it.
“Fed has no solution to the mess”
I could be cynical and say ‘wait for 30 years.’ Faux interest rates infected everything with a yield, or interest rate–even $70K pickups. It helps to think of it as faux inflation. Easily popped, but at what cost.
I have difficulty imagining anyone so dumb as to implement sub-zero real interest rates for a prolonged period without considering consequences. It speaks to competence of the Fed, or the lack.
They are missing a big market. Just strong-arm some localitiies to reduce regulations … and put out very small tax credits out there to fix up the unlivable homes. I have done it many times … and if there was any incentive for doing so … a notable chunk of homes could be re-habbed to increase housing supply. At the same time, neighborhoods look better. The newly rehabbed places can be sold to create new homeowners or rented to backfill all the homes coming out of the rental market to create new homeowners (many of whom sadly, will likely become renters again after they default on their mortgages).
Anything to boost supply would help. That includes anything to reduce the cost of development.
I find it highly unlikely that life safety regulations would be changed (building codes/mandated fire sprinklers, etc.).
HOWEVER, they could do things like eliminating parking and/or size minimums, upzoning property, reducing the ability of NIMBYs to slow/stop development for spurrious reasons, etc.
The problem is that politically, we can’t get out of our own way. For example, in LA, there was ED-1 (Executive Directive 1), which allowed much more flexibility for 100% affordable housing. There are tons of projects in the planning process–supply is coming. The next thing you know, there are rumblings about such projects being required to use Union labor–which would kill all that supply. One step forward, one step back.
Infuriating.
So you just put $20k into your 401k and now that money is being used to buy homes? And you are complaining that home values are too high? And you’re complaining that your 401k returns are too low? Ohhh.. this will be fun to watch..
The big 3 keep buying them all up! Why wouldn’t they, they can still borrow endless amounts of money for well below the rate of inflation, particularly the rate of inflation of houses. And then don’t forget we’ve got rapid population growth far outstripping the rate that new homes are being built. That population growth is being largely driven by illegals, but it don’t matter they have got to live somewhere.
It’s a nice gig actually, borrow endless money at low rates and buy up as many houses as you can with next to no margin, then support politicians who will stuff as many people into the country as possible to keep up demand, and watch the mark to market soar! God knows what will happen if they ever have to sell though.
The homeless count is way above the 2% FED inflation target.
What if home prices are going up because everyone sees housing as a liquid investment and everyone is expecting / demanding 3-5% YoY returns? So we are getting what we are demanding. Best solution may be housing shares that people can buy into like a stock ticker. Once you own 50,000 shares of “Dallas Housing”, you can turn those into a 2 bedroom! This way you can micro-buy into a market and each share rises as you build….. Or houses are NOT investments, like used cars…
Sounds indirectly like what China has been doing.for the last decade. Clearly, it worked swimmingly.
Correct. It only works because it doesn’t work and people are forced to go back to the right answer. Houses are NOT assets that appreciate. If you pour money into them continuously, you end up with something you can pass on or sell which is worth about what you paid for it in real terms.
Houses DO appreciate faster than inflation, but only IF building new ones becomes increasingly difficult in that specific area and also IF interest rates slide down for 40 straight years, as they did. Barring those things, the yes they will just track true inflation.
bingo. r/e is good for investing in, whether one is a farmer, rancher, oilman or office building and apartment owner………..to live in one, it is 100% just pure consumption. you might make out buying 30 years worth of food and clothing and fuel too, with or without a note, but it’s really consumption.
Houses are investments for landlords.
There are also REITs you can invest in if you want X shares of Dallas housing so that idea is already in place now so no need to duplicate it.
Those REITS seem like the new scam of the century to me. Wall Street specifically avoided real estate for over 100 years for a reason…the money is slow, and the hassle factor is high.
the great depression scarred many in wall street banks from tying up money too long in r/e. but of course the great book, “where are the customers yachts” is the truth about the FEDRESNY and her owners, the nyc wall street money center banks……..
shiller long long time ago did a few test cities for house price insurance. i believe syracuse NY was one. so people could hedge their zip codes against price declines. i believer the insurance and r/e and hedge fund lobbies…………killed it. go read about it. fascinating really.
Joy through homelessness
like joyful genocide and the right wing christian kook version of anti semitism but pro zionist war mongering genocide…………….