The Case-Shiller national home price index hit a new high in February. That’s the latest data. Economists don’t count this as inflation. 
Chart Notes
- National and 10-City Case-Shiller home prices hit new record highs in February
- OER, CPI, and Rent are indexes measured by the Bureau of Labor Statistics (BLS).
- OER stands for Owners’ Equivalent Rent. It’s the price one would pay to rent one’s own house unfurnished and without utilities.
Case-Shiller measures repeat sales of the same home over time and the indexes attempt to weed out major home improvements.
Case-Shiller is a far better measure of home prices than median or average prices which do not factor in the number of rooms, location, lot size, or amenities.
Not Inflation?!
Economists, including the Fed, consider homes a capital expense, not a consumer expense.
As a result, they all ignore economic bubbles and blatantly obvious inflation on grounds it’s not consumer inflation. This has gotten the Fed into trouble at least three times. The first was the dot-com bubble, then the Great Recession housing bubble and now.
It’s really pathetic when you make the same major mistake over and over and over. It’s a result of groupthink.
They all believe in the same silly models based on disproved theories including inflation expectations and the Phillips curve. You do not get in the good ole boys Fed club unless you think like a good ole boy.
Inflation Expectations
Fed Chair Jerome Powell mentions inflation expectations at every meeting. So did former Chairs Janet Yellen and Ben Bernanke.
In my post How Do Inflation Expectations Impact Wages and Future Consumer Inflation? I explain why inflation expectations are irrelevant to future inflation.
Moreover, two Fed studies agree.
One of the Fed studies debunking the theory cited Mark Twain The Tragedy of Pudd’nhead Wilson (1894) “Few things are harder to put up with than the annoyance of a good example” and John Kenneth Galbraith (1958) “It is far, far better and much safer to have a firm anchor in nonsense than to put out on the troubled seas of thought.”
The Fed consists of a bunch of groupthink wizards who believe in inflation expectations and don’t believe home prices constitute inflation.
They do not understand that inflation matters, so the only thing they look at is consumer inflation.
As a direct result of not understanding the importance of asset bubbles the Fed is in a big mess: The Fed’s Big Problem, There Are Two Economies But Only One Interest Rate
When the Fed slashed interest rates to zero, mortgage rates fell below 3.0% for an extended period allowing everyone to refinance at 3.0 percent or below. Most did.
Whereas the renter is struggling, the homeowner refinanced lower putting extra money in his pocket every month.
Winners and Losers
- The homeowners are generally doing OK. The home ownership rate is 65.7 percent.
- The 34.3 percent who rent are generally not doing OK.
Those renting and looking to buy a home are very angry at rent prices up at least 0.4 percent for 31 straight months while home prices are the least affordable in history.
No one wants to trade a 3.0 percent mortgage for a 7.5 percent mortgage so the housing market is essentially locked up.
There is no solution to this self-made Fed problem. The Fed has never admitted it created this mess or any mess.
“Lack of Progress” on Inflation
My understatement of the day is The Fed Notes “Lack of Progress” on Inflation
While I blame the Fed for its total unawareness of housing bubbles and failure to figure out that three massive rounds of fiscal stimulus would cause inflation, Congress and President Biden deserve a huge share of the blame as well.
Biden’s regulatory madness and EV push is highly inflationary and so are budget deficits sponsored by Democrats and Republicans alike.
Bought our home here in west/central Maryland 10 years ago for 525k. House next door with same floor plan just sold for 1.2M!
Prepare to take it in the shorts on property taxes. If you haven’t already.
$525k and the house next door looks the same?
Case-Shiller is a flawed metric. By only doing matching homes, it is not capturing enough timely transactions to accurately measure the housing market, as the same house rarely comes on the market twice in a relatively short period of time. It also fails to adequately capture the massive amounts of money some flippers are putting into these matching sales. I know it tries to account for this, but the methodology is too objective and lacks hard data on the actual costs of some repairs for it to ever be accurate. Reef Insights recently did a post debunking the idea that median sales price of homes metrics are flawed. Median sale prices are far more timely than CS, and are now showing the largest nominal decline since 1964.
https://twitter.com/ReefInsights/status/1786007834527662102
So the median means the middle value in the distribution. Median sale prices declining tells us…what? That we have a transaction crash? That that pig Larry Fink at Blackrock has taken a burp from gorging on housing and making us own nothing but be happy (i.e., nation of renters) to focus on buying up land in Ukraine through Alex Soros and suckering people with Bitcoin ETFs?
Given how far home prices have shot up since the late 2010s, especially so after COVID, and especially so relative to income, the largest normal decline in 60 years doesn’t mean much.
All we have to do is look at that chart Mish puts up showing home prices disconnecting from CPI in 2000, briefly retouching it in 2012-2013, then going asymptotic.
House prices are still way overvalued and the market is still a seller’s market in the extreme. Sure, agents are no longer suggesting buyers write letters pulling at the heartstrings and telling sellers why sellers should sell the house to the buyers, but in my market buyers are still throwing themselves at sellers. Offers 10% or more over asking with escalation clauses to take their offer even higher. Guaranteed appraisal gap coverage. Buyer pays all closing costs and covers the last year or more of property tax that has accrued while seller has owned property but not yet been paid.
I was at a coffee shop yesterday (no it was not a hipster coffee shop and no I did not pull up and park a Tesla in the no parking zone and absorb a parking ticket so that I could show off my green creds) and got to chatting with a couple of retired gents.
One was in the building industry and was explaining to me that new builds in Perth are dramatically down… that is because building costs have gone through the roof.
If someone does build new you get a lot less bang for your buck — they have to cut corners on size and quality of the build.
What that has done is driven secondary market prices higher… they are still lower than costs for new builds but you can find better quality builds. Secondary market houses get snapped up within days and prices are up 20% in the past year.
He was wondering where it all ends — for now it is holding together but at some point surely it has to tip when costs exceed what people are able to pay…
Before moving here I was in NZ and my neighbour owned a landscaping company… he was more sanguine about the fact that he’d nearly double the salaries of his workers over a 3 yr period (no choice – they have other offers) saying he just passes on the higher costs to clients.
At some point surely the clients will say no mas… and just not do the work.
A mate in NZ is a painter — and that is exactly what he says was happening over summer… he had 3 major jobs lined up that kept him busy — 2 of them cancelled citing ‘no budget’….
This is where we are headed globally … stagflation is the least of our worries…
Total collapse is baked in. Can you feel the water starting to boil?
Oh and BTW I did discuss EVs with the retired guys at the coffee shop — one of them had read the story about how the resale value of an EV will go to zero as the warranty on the battery approaches its use by date…
Can you see what is happening Jeff Green? The herd is the herd and can be controlled by bbccnn… and the Ministry of Truth… but the herd can be spooked… and head in a completely different direction. The herd smells a wolf pack….
I highly recommend selling your EV collection … any price is better than ZERO.
I have a design for a new style home.
It is round.
It is the least expensive as all corners have been cut.
Money is no longer one of those symbols on the periodic chart. Thus, money is whatever Powell makes it. People are trading their Powell Paper into 2 X 4s, and vegetables in the back yard.
Boilerplate
That headline is chef’s kiss great!
Repeat after me: Homeownership is not a right. Neither is getting married and starting a family. That is where everyone goes wrong. Effectively, the younglings grew up in a world with helicopter parents and given everything and expect everything too soon. Welcome to reality.
On the other hand, a nation where a regular person can’t do these things is called Zimbabwe.
Of course, you are correct. Saving for the future is not trendy. I don’t know where it’s all going but it won’t be fun for many of the special ones. I hope I didn’t hurt the feelings of any snowflakes out there.
The Fed can try whatever half measures they can think of. The only thing that will work is removing money from the money supply and cratering the economy. This whole recession avoidance scheme leads to no good options and just more stuff to clean up later on. Get back to the 1990s financial regulation before all the dereg and everything will get cheaper almost overnight. Sure some banks will go under. But that is necessary.
QE, LSAPs on Sovereign’s, reduces the money multiplier, thereby sterilizing reserves and suppressing long-term interest rates. This causes investors to recalibrate their asset holdings, e.g., invest in the housing market.
Unlike Treasury issuance, because the belligerent bifurcation (the mis-aligned distribution of sales and purchases of debt by the FRB-NY’s trading desk and its customers/counter-parties (bank vs. nonbank) is largely unpredictable, so too now is the volume and rate of expansion in the money stock. FOMC policy has now been capriciously undermined – by turning nonearning excess reserves into bank earning assets.
This is in direct contrast to targeting: *RPDs* (reserves for private nonbank deposits), and by using non-borrowed reserves as its operating method (predating Paul Volcker’s October 6, 1979 pronouncement on the *Saturday before Columbus Day*), as Paul Meek’s (FRB-NY assistant V.P. of OMOs and Treasury issues), described in his 3rd edition of “Open Market Operations” published in 1974.
This adds up to an obdurate apparatus that the Fed cannot monitor, much less control, even on a month-to-month basis.
The more interesting thing is the affordability which is at or near all time lows.
That will not continue
In the 1950s, when affordability was similar, it resolved 2 ways. Home prices increased at a low rate while wages improved. It took 10 or 20 years but the affordability resolved itself
In the current situation, how would you think it will resolve?
Wage growth? HUGE one time upward adjustment has just happened. Will it continue?
Not likely.
I see housing prices resolving itself when we enter our depression. The layoffs are significantly increasing. https://dailyjobcuts.com/
There may be hope. The company I work for, which tans leather in flyover country USA, mostly for boot and shoe manufacturers, has had a number of employees on voluntary furlough since November (of 2023), and we also did a few short weeks with Friday off.
Just in the past two weeks, the company has called back all the furloughed workers and is now hiring a few people for the first time in about 18 months. There is also suddenly overtime available and some Saturday work for those who want it.
We’ve rearranged some business and have gotten some orders in, so things are looking up where I work, at least for the time being.
I suggest to work all the overtime you can and save the money.
An interesting possibility.
Replace plastic shoes with leather shoes.
The U.S. Golden Age in Capitalism was where small savings were expeditiously activated and invested in real investment outlets (real estate).
So, the velocity of circulation was 2/3 of AD, while money was only 1/3. Today we have the opposite scenario.
I was old enough to remember the stagflation of the 70s. I must tell you, this all feels the same, too me it’s Deja Vu all over again.
The BIG difference is that in the 1070’s many households had an escape valve for inflation, the stay at home wife. Many households chose to take her off the bench so to speak, and in that way cope with the higher prices of everything. What coping mechanism is there today? Credit cards apparently but that party seems to be running out of time.
Growing unions will demand COLAs in their new contracts like they did in the 70’s.
The US can get sustained inflation over 10% again if they really try.
Unions are a concern. When wages are much higher than productivity inflation is a given. Fortunately, industrial unions with wage pricing power are pretty much over.
It seems odd that both low interest rates and high interest rates contribute to asset bubbles in home prices. That suggests that there may be other inputs at play. Perhaps local zoning laws, system development fees, construction and material costs, just to name a few. The Fed ain’t perfect. But we have a tendency to blame everything on the federal apparatus while ignoring the local bottlenecks that get little media attention. It’s a lot easier to kvetch about the president, the fed chair and other federal players but ignore what the hell is going on in your own back yard, at the municipal/county level which is often the more consequential.
The “administered” prices would not be the “asked” prices, were they not “validated” by (M*Vt), i.e., “validated” by the world’s Central Banks.
Or the fact the FED illegally bought $3T in mortgage backed securities and REFUSES to get rid of them
BTW that $3T is over 25% of the entire MBS market
That too is a factor. Good comment.
Home for sale at 118 W. Arizona St., Detroit $8,000. Not a typo but needs a lot of work. See Zillow web site for more details.
Does it come with pit-bulls?
$7,500…windows are strangely squeaky clean, but the lawn is overgrow and there’s trash outback. Hmmm..?
Is a bulldozer included?
Don’t know any informed professional who believes government statistics. As the saying goes, there are lies, damned lies and government statistics. The latter has only become worse over time.
The saying, as I recall it is
“there are lies, damned lies and statistics.”.
I believe Mark Twain is attributed. (see https://en.wikipedia.org/wiki/Lies,_damned_lies,_and_statistics for confirmation) I don’t mind quotes, but misquotes are different.
Barry Ritholtz just posted an article saying inflation is defeated and the Fed should be cutting rates already.
Is he having trouble generating a return more than Treasury Bills? Are clients subtracting his fees from the returns and realizing they can do better? Inquiring minds want to know.
I don’t understand how lowering rates will lower inflation, it will do the exact opposite! If borrowing is cheap then people and business will go out and consume. Pent up housing demand will explode.
Interest rates per se are not a contribution to inflation but they do encourage borrowing and with fractional reserve banking, banks can increase the money available to lend by lending.
Except…. credit card debt is through the roof along with credit card defaults. So realistically, the only way to increase lending is to create another subprime market. Will they do it? Probably at some point.
You’re right. Lower mortgage rates mean demand for houses and condos will go up….and that’s inflation even if the Government doesn’t count house prices in the CPI. Everybody knows inflated house prices lead to inflated insurance costs, and labor rights for home repairs and maintenance costs more. We actually need higher rates but interest on 34.7 trillion dollars in federal debt is now the 2nd highest item in the federal budget and it’s going to #1 in 3 or 4 years unless rates drop a lot. Trillions in old debt is rolling over this year at much higher rates. Interest costs are more than the defense budget and more than Medicare.
My pent-up housing demand is about to explode! I’m tired of living in this damn Tent.
You must be middle class.
The new housing standard is a refrigerator box under the bridge.
But availability is limited by the supply of new refrigerators.
Myth or not, because they had faith and conviction, people that lived in tents were the progenitors of nations, and their life stories have been read by billions over millenia.
Usually they trot out some economist “experts” on TeVe to push for rate cut. It’s unusual to do it directly.
“Home Prices Hit New Record High, Don’t Worry, It’s Not Inflation”
Apparently, some row houses in Baltimore can be bought for a dollar. As they say in real estate, location, location, location.
If you saw some of those places, you would pay to not live there.
One dollar enables you to pay annual taxes into perpetuity.
We need freedom. No building rules, no arbitrary zoning. Architects and contractors know how build a house.
Build what you want, the size you want, in every piece of land you have bought. A hamlet or a palace.
So sad to see an entire generation priced out of the housing market. They can’t afford college, can’t afford a house and can’t afford to start a family. Any wonder they hate Biden so much?
They should HATE the Federal Reserve and Congress. Those are the criminals responsible for this.
I look forward to the protests and riots moving away from the colleges and move to DC at the FED Eccles Building and at the Capitol. I will join them then
They should but it always starts at the top. As goes the president so goes the country. Just look at Biden and tell me he is not the poster child for America’s ills
Careful what you wish for – you never know how DC protestors will be treated – Could be like like J6 or BLM.
Right. And all of that started under Biden. Housing and everything else was CHEAP before Biden became President. LOL.
The standard of living has been dropping in America over the last 3 decades. The dollar is buying less. 80% of all the money ever created was printed since year 2000.
They can afford cell phones, streaming subscriptions, eating out and vacations so it’s all OK.
When asset prices go up we are to believe it’s not inflation. Thus, when QE (which is money printing since the fed balance sheet will never be unwound) boosted home and stock prices it wasn’t inflation.
Inflation is always a monetary phenomenon. The goverment works hard to hide this fact. We are told by grifter politicians that it’s all due to greedy businesses. FJB! FI!
If you think Housing costs are expensive now, just go ahead and put the Biden Gang of Thieves back in power for Four more years. Those same who want to lock away the resources of the Nation you live in and throw away the key.
Get you thrills and chills with the Green New Deal.
Their policies make housing much more expensive. Then they tax the heck out of “rich” people to subsidize housing for “disadvantaged” people. It’s a scam.
The plan is to inflate everyone into “richness” and tax them.
Things could be worse. I foresee a huge increase in life insurance rates for Boeing safety inspectors.
I hear that Boeing has hired the Clinton’s as consultants.
If a person is waiting for the Fed or Government to make housing affordable for you, would suggest you start looking for a solid refrigerator delivery Box and call that home.
If you want a House then take that as your personal responsibility and start someplace.
Even if it means buying some dump in a drug infested inner city like Baltimore.\Or if that does not appeal then go somewhere where there are no zoning laws and far enough away from urban/suburban land use criteria and build it with your own two hands.
There is a cost driven parameter that can not be set aside. Build-able land comes with Building Department, Health Department, Water availability, Sewage/Cesspool,
Excavation and Land clearing, Foundation, Lumber and Framing, Plumbing, Electrical, Insulation, Windows and doors, Siding, Roofing, Interior wall finishes, Trim, Flooring, Cabinetry, Painting, Moving Expenses, Furniture. Exterior Landscaping, Driveway, dealing with public Utilities, Roads and all that entails.
These items require qualified Trades People to put things together. Trade Labor also is not in it for charity, they have to pay for Licenses,Workers, Workers Compensation, Social security, Health Insurance, Liability Insurance, accountants, Office staff.
Whatever gets left for the people doing the work is what they are left to live with and provide for their own families.
Then there are the Banks who take their skim off the top for lending.
Naturally Government is right there with hand extended for Tax monies due,filing fees, Lawyers, Fines if they want to impose them. It is one Helluv a Mess to Build and not go Bankrupt.
With all this there remains Mother Nature who is out to make your life as miserable as possible while putting up a Home.
So if you intend to own then take off the Blinders and either earn enough to buy from someone who can Build or learn to do it yourself as much as possible and deal with a Contractor who will work with you to Build.
Says the guy who thinks it’s reasonable and normal for his $400k house to magically be “worth” $950k in 3 years time…..
A hamburger with fries didn’t just magically go up 20% in Commiefornia, it was mandated by the state. There are new regulations that are instituted everyday that impact housing costs. Yes, there is a component of speculation in housing but Richard F has a valid point as to another part of the equation.
When I started in the game framed 1000 sq ft straight ranch on Slab with one car attached garage. for 650 US Bucks. That was for builders package which included setting exterior Doors, Windows and Fascia.
Starter Homes went for 29,000.
No air nailers, hand nail only and sharpened my own saw blades as Carbide teeth were not available. Monday thru Friday was field work, Saturdays was for fixing saws, equipment like generators and sharpening Blades for the next week.
Could walk a 12 on 12 pitched roof to sheathe without scaffolding. Just walked the rafters and ridges.
So your starting point is wrong that 29,000 dollar house is now 600,000.
1/4 acre building lot was 9000.
So am solidly in the camp of calling Bull shit on Federal Reserve and what has come since the days of my young adulthood.
When young used to look forward to getting up and going to work as it seemed to be doing something of value. Taking a truck delivery of Lumber turning it into a House. As years passed got tired of dealing with 50 year old children so I got out.
will qualify on sheathing part. Used to put 2×4 as bottom cleat so if hit some sawdust causing feet to slip while sheathing roof would have a last stop before going over edge.
To all those who don’t like the Truth, keep thinking that Uncle Joe and Jay Powell are going to take away your pain.
The reason people are bidding up existing housing in communities that are worth living in is because they look around and see their are few to no good alternatives.in years to come.
It now takes 2 or 3 people to do what used to be expected of one person.in the trades.
Osha does not allow for the way things used to get done either.
Try getting a new subdivision approved or even a building permit 2 to 5 years lead time.
I don’t understand why you’re down-voted by eleven. There are many variables to home ownership. The location decision is probably the largest unless you are looking for a place to live, not invest.
The challenging aspect of home ownership today is that one can buy cheap land in low-income areas or have a higher-paid job in an expensive housing location. It really is a loss—lose situation for a younger person looking to own a home. It is very difficult.
Fully agree with your post. That is why I had made mine. Full blown housing crisis is developing and can only get worse. Materials have soared, qualified labor has not been trained as it takes years to learn ins and outs of skilled trades. Land use policies stretch out development time frames.
Using Housing for stimulative monetary purpose as it has been by Central Banks has wrecked the Housing Industry. Stop and go economic conditions are now reaping consequences that affect generations.
Dreaming that there are quick fixes available will not solve Housing shortages.
The only solution is for people to do what is right for themselves. If they do not have sufficient funds they can substitute their own physical and mental powers to create and own habitat for living.
“…Economists, including the Fed, consider homes a capital expense, not a consumer expense…”
What’s amazing to me is that the Fed has all kinds of price indices for business activity, but when it comes to the average Joe/Jane shelter (i.e. buying a home) is viewed as capital expense and largely ignored. Every mainstream definition of a capital expense relates such an expense to businesses and business type activity.
Shelter is a basic human need just like food and clothing. Using the Fed’s logic couldn’t one exclude food and shelter from inflationary measures as well? After all, aren’t those two things a capital expense? You use both to improve your most valuable asset….yourself!!!!!
We live in a clown world……
When do peeps sitting on 3% mortgages in houses that are at all time highs (which is not inflation) start tapping those HELOCS again so they can max out spending? Now that’s equity! SP500 6000 … Lulz. Same as it ever was, same as it ever was.
Lower rates and unlock a wave of existing home supply or change the laws and allow borrowers to keep their existing mortgage by allowing a mortgage holder to replace the mortgage lien with another home as long as the loan to value is the same or better.
“There is no solution to this self-made Fed problem.”
There is a solution and that is for the Fed to keep interest rates at levels that are above inflation.
How will that help or change the housing market? People will continue to cling to their 3% mortgages and not move. That means fewer homes on the market which presumably means either bidding wars for the ones that do or all cash buyers.
Plus higher rates will be a huge problem for the Federal Government in the next year or two as it tries to refinance bonds coming off at 0-2% at the new 5-7%. Interest payments will eat more of the tax revenue forcing either more taxes/more printing (inflation)/massive cuts to government services.
I’m in no way advocating for a return to 2% or less, just saying the Federal Government has a HUGE vested interest in not letting rates stay high because if things blow at the federal level it will make high cost housing the last thing on anyone’s mind.
The interest on the debt means the feds have an interest in lower rates. The cost of the higher rates is more inflation.
Not all people have mortgages so those that have paid off theirs can sell and buy another with cash. That is a lot of people. About one half have mortgages under 5% but only one quarter have a super-low rate of 3% or under The under 3% group won’t sell. The 3% to 5% could sell if they already have high enough equity or if they need to move because of jobs or something else. Death is also always there. Generally there are many reason to sell. Many sales now come from people who bought at a low interest rate to do short-term rentals and that market just died so they have to sell even if they have a low rate.
Too low interest rates were bad for the government because it discouraged discipline and a return to fiscal discipline is a good thing. Even the Fed recognized that. If not for the Covid debacle and the aftermath our fiscal situation would have been fine and we have to get back to where we were before at the least.
“The homeowners are generally doing OK. The home ownership rate is 65.7 percent.”
They may be generally doing ok for now but don’t expect that to hold. As prices go up so does insurance, property taxes and other related fees.
Florida home owners are the canary in the coalmine, many are simply selling and leaving the state as the problem continues to get worse.
https://www.liveinsurancenews.com/florida-insurance-policy-loss/8559110/
Some are leaving. But Florida overall is a net importer of population so more are coming than are leaving. If the population starts declining you’ll know the problem is real.
The State continues to offer state insurance of last resort for homes less than 500K (1 million in Miami/Dade counties) in replacement value.
11.9 percent is a steep number Tim. I hope you’re not left a lonely bag holder or expensive real estate in Florida.
https://www.newsweek.com/florida-homeowners-relocating-insurance-crisis-cost-1893248
Some 11.9 percent of homeowners in the Sunshine State who told Redfin that they plan to move in the next year said they were doing so because of climbing insurance costs, roughly twice the number of U.S. homeowners who, on the national level, are planning the same (6.2 percent). The survey was commissioned by Redfin and conducted by Qualtrics in February 2024 among 2,995 U.S. homeowners and renters.
Youtube channel of Michael Bordenaro, a Florida resident and realtor, talks about this all the time.
Property tax bills are going up in Florida with some properties seeing massive increases due to the loss of the homestead exemption after the property is sold. Same for home and car insurance rates in Florida provided your insurance doesn’t drop you altogether.
Florida may still have a net increase of residents, but how long will that last given the property tax and insurance premium increases.
This doesn’t even account for massive condo fee increases due to decades of deferred maintance.
Just read that an Orlando condo association is levying a special assessment that equates to $11K to $22K based upon unit size. This is due to new state law mandated after the Surfside condo collapse. The HOA maintenance reserve funds are woefully underfunded as many of the yearly planned assessments had been waived over the years. This will impact a lot of condo owners going forward. Some years ago, many oceanfront condos had major special assessments to provide for the replacement of balconies. The rebar holding the concrete balconies together was rusting and a concern for potential failure
Homestead exemptions are one of the worst things known to man kind. Totally rips off all the tax payers who aren’t getting it or aren’t getting it at 1980’s prices.
The more properties that come up to market value the less taxes everyone overall has to pay.
I hope I’m not a lonely bag holder either!
But Wolfstreet published his quarterly splendid housing bubble in America post a couple of days ago. Miami area still making fresh all-time highs. Tampa is less than 1% off their all time high. So while there may indeed be problems, it isn’t yet showing up in home prices.
I didn’t just lock in 2.375% in November 2021, I also rolled $30,000 cash debt into it (wife never met a purchase she didn’t want to make) and POOF that $30K vanished. So that sends the wrong message to her, keep spending, it’ll be alright. But now the consequences of borrowing that same $30K are 2-3x as expensive. See where this is headed?
I did not see your post before I snarked on this. Highway to Hell is where its heading.
Could have hid a couple of monster boxes under a newly planted silver maple tree. Just not near a sewer pipe. Silver – get it? The Secret Lies With Charlotte.
Divorce?
She would probably get 1/2 of everything. My husband is lucky. I’m a big spender. I spend to our savings accounts. He’s retiring in July and we’re going to do a lot of traveling.
Right I grabbed about the same amount and it was gone in like 3 months. No bueno.
That’s right – it’s not inflation… it’s unprecedented mass immigration… and
… increasingly singleton living …and not building as much because of NIMBYism overfinancialisation of some economies… and, banks not lending out as much…
you can’t have inflation without banks lending more and without increasing money supply… obviously… why do imbeciles keep calling every price rise “inflation”?! have they never heard of scarcity?! Why do idiots keep claiming that bank reserves are money?!
I’m not sure why you got so many down votes because you make a good point. There has absolutely been a retrenchment of lending policy that started in the early 2000s and has never corrected. It started with the drying up of small business financing, and it never made any sense to me because I know for a fact that these loans were among their best performing portfolios. Not only that, a good percentage were collateralized or semi collateralized. EVERYBODY knows that its safer to lend this way than traditional credit cards, yet these loans have (mostly) gone the way of the dodo bird.
Around 2007-2008, credit limits were severely curtailed and have never returned to where they were previously. Also, rates relative to prime have been outrageous since at least 2010ish. And finally, even mortgage lending is much tighter than it once was.
I’m surprised this isn’t discussed more because its an important piece of the puzzle.
It’s just really simple–unless and until the “numbers on a page” go down, the numbers for the average consumer who isn’t an asset holder and is trying to make ends meet will continue to extend beyond their reach and pain will persist. That is, until the passive gift income of the housing and stock bubbles is erased by taking back some of the massive gains over the last 2-3 years, money will slosh about and this bifurcated inflationary economy will persist. The sad thing is that most folks I know that own homes and 401ks would be perfectly fine having their home price and 401ks go down to a more reasonable appreciation rate but there are lots of pain points for fixed income folks or those that do not own assets that will continue to struggle and get angrier if it doesn’t happen.
Best article/point Mish has made of late is the 2-economies piece. You just cannot print money into existence due to the need to fund massive deficit spending tossed about everywhere, have that money end up in a select group of folks’ hands via stock and home price outsized appreciation, and have a large swath of Americans NOT participate in that gain and expect kumbaya all around. I see haughty friends that made more in their stocks and house in the last 4 years or decade than they have in 30+ years of working. Taking trips, paying whatever inflated price for a 4×4 truck or whatever…doesn’t matter when passive gift income has rolled in. Then I see my nephews and niece angry AF knowing they have absolutely no chance of outpacing inflation soon enough to save enough for a downpayment on a home whose prices at even the low end are beyond reach.
Simple as this–home prices and stock prices MUST fall or the dispartity will lead to something far more sinister. Sure it will stink. Sure it will be resisted and likely lead to bad public policy that will be enacted to arrest the fall and put the check valve in place to hold up asset holders. But it must happen. And when the debt ceiling suspension expires mid 2025, watch the kavetching federally.
There is no money printing. Bank reserves do not enter the economy, they don’t increase money supply. Commercial banks lending into the economy create money and increase money supply; that isn’t happening, which is why it’s not inflation, it’s immigration (mainly).
The problem with wanting (or waiting) for home prices to fall is exactly what you also stated, there is a lot of money sloshing around due to Covid.
As you well know, that money has to go somewhere and it’s gone into stocks and homes. For homes to fall it has to go somewhere else. But there aren’t really any other places for it to go.
The only way out of this for your nephew / niece (and my teen kids in a few years) is time. That extra money hasn’t been in the system long enough to be smoothed out. Over time (say a decade) if home prices stagnate or grow slower than inflation then they’ll come more into line with historical norms.
It sucks for those right now caught in a bad place because they are going to lose a decade.
That money doesn’t “have to” go somewhere else. There is such a thing as money heaven and it’s happening big time in the EV space. Every time Musk lowers the cost of a new Tesla – because people have less money to spend now – every other Tesla out there instantly loses value. The same should happen to homes in time (and already is in many places). Every time a new homebuyer pays less for a home, the entire neighborhood sinks and there goes all that “covid money” straight to money heaven…not into another asset class. You’re so right about the smoothing part though. It has to happen, we just don’t know the pace and severity of the rebalancing process. It’s already taking longer than many expected, probably due to the AI bubble and all the wartime-level spending coming from Washington.