Home Price Synopsis
- Home prices have peaked this cycle but the decline is certainly tiny compared to the run up.
- There is a two-month lag in reporting. The latest report is for January and that represents sales primarily made in November and December.
- The declines shown are undoubtedly understated by a lot.
- Declines will accelerate but not fast enough to revive a housing market that has soured dramatically.
Home Prices Are Falling Everywhere, But Declines are Relatively Small
CS National ,Top 10 Metro, CPI, OER Index Levels
Chart Notes
- OER stands for Owner’s Equivalent Rent. It it the price one would pay to rent a home, unfurnished and without utilities.
- Home prices wildly disconnected from the CPI in 2000 and in 2013. The disconnect accelerated in 2020.
The Fed ignored all three occasions hoping to make up for “lack of inflation”. The Fed “succeeded” in producing inflation beyond it’s wildest dreams.
Sticky Prices
The year-over-year CPI has finally peaked this cycle as have home prices. But both are falling slowly. Inflation has been sticky.
Don’t dwell too much on the percentages because the data is stale.
But do look at the trends. Those trends will be in place for a while.
Not Much Out There
Stalemate
- Buyers want lower prices, but sellers want the prices they could have gotten 18 months ago.
- Existing home owners do not want to trade a 3.0 percent mortgage rate for a 6.57 percent mortgage, the current average rate.
- New buyers cannot afford much of a home because prices have not fallen much but mortgage rates have soared.
Buyers and sellers are trapped but in a much different way than 2008.
This post originated on MishTalk.Com.
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Mish
What?
Our VW ID.4 has a 250 mile range.
This is how the WSJ reports it:
In an unusual pattern, the 12 major housing markets west of Texas, plus Austin, saw home prices fall in January, while the opposite happened in the rest of the country.”
Paul Volcker was
quoted in the WSJ in 1983 that the Fed: “as a matter of principle favors
payment of interest on all reserve balances” … “on rounds of equity”. [sic]
That lowers the
real rate of interest. To raise the real rate of interest Congress must
activate monetary savings, i.e., drive the banks out of the savings business.
The DFIs are credit
creators. The NBFIs are credit transmitters. The NBFIs are the DFI’s customers.
Savings flowing through the shadow banks never leaves the payment’s system.
Real interest rates
are negative because of interest rate suppression, i.e., the payment of
interest on interbank demand deposits (on outside money). This increases the
supply of loan funds and decreases the demand for loan funds, hence lower
interest rates. It causes investors to rebalance, to stoke asset prices.
Paying Interest on
Reserve Balances: It’s More Significant than You Think – Scott Fullwiler Date
Written: December 1, 2004
until January 31, 2006), – every single rate hike was “behind the inflationary
curve”, behind RoC’s in long-term money flows).
See – Sent: Thu 11/16/06 9:55
AM “Spencer, this in an interesting idea. Since no one in the Fed tracks reserves
(because the ABA and stupid economists want to eliminate them)…” and “Today,
with bank reserves largely driven by bank payments (debits), your views on bank
debits and legal reserves sound right!” – Dr. Richard G. Anderson
And we knew this already:
established on Member Bank Reserve Requirements. The commission completed their
recommendations after a 7 year inquiry on Feb. 5, 1938. The study was entitled
“Member Bank Reserve Requirements — Analysis of Committee Proposal”
After a 45 year hiatus, this
research paper was “declassified” on March 23, 1983. By the time this paper was
“declassified”, Nobel Laureate Dr. Milton Friedman had declared RRs to be a
“tax” [sic].
Monetarism has never been
tried.
policy should delimit all required reserves to balances in their District
Reserve bank (IBDDs, like the ECB), and have uniform reserve ratios, for all
deposits, in all banks, irrespective of size (something Nobel Laureate Dr.
Milton Friedman advocated, December 16, 1959).
total legal reserves and their reserve ratios. That was the true policy
instrument.
Monetarism does not mean
targeting nonborrowed reserves, which as Volcker found out, was not
restrictive. Volcker stopped inflation by imposing reserve requirements on NOW
accounts in April 1981.
By mid-1995 (a deliberate and misguided policy
change by Alan Greenspan in order to jump start the economy after the July 1990
–Mar 1991 recession), legal, fractional, reserves (not prudential), ceased to
be binding – as increasing levels of vault cash/larger ATM networks, retail
deposit sweep programs (c. 1994), fewer applicable deposit classifications
(including allocating “low-reserve tranche” & “reservable
liabilities exemption amounts” c. 1982) & lower reserve ratios (requirements
dropping by 40 percent c. 1990-91), & reserve simplification procedures (c.
2012), & reversion back to lagged reserve requirements on July 30, 1998, combined to remove reserve, & reserve
ratio, restrictions.
This
was the direct cause of the GFC, the boom/bust in real-estate (as predicted in May 1980). I.e., reserves would decline and the means of payment money would approach M3.