Posted on 08/13/2024 10:51:08 AM PDT by SeekAndFind
The Fed has grossly distorted the housing market and no fix is in sight. A couple of images will explain...
Chart data from Case-Shiller, mortgage calculation based on Fannie Mae 30-year mortgage rates, chart by Mish
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.
The above chart represents the mortgage payment of the same house as the lead chart reflecting the changing price and interest rate over time.
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!
Mortgage rates are slightly higher in practice.
Also, prices do not include property taxes or insurance.
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 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: 212 to 323, +52.4 Percent
Rent 187 to 231, +23.5 Percent
CPI: 153 to 185, +20.9 Percent
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.
Data from ADP, chart by Mish
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.
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.
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.
This is what happens when people elect lawyers instead of leaders...
The apples to apples comparison would include the rate of increase in wages since 1988.
Obviously housing costs (ownership or renting) have increased much faster than wages during that period.
My mother’s house cost new $6,000.00 in 1969, just saw it listed for $207,000.00
It’s the insane government spending that has to be underwritten.
Don’t blame the Fed - blame the Congress.
The congress created the Federal Reserve, and the the Fed is so bad lean on the congress to eliminate it!
OR - prohibit the Fed from buying Treasuries - let only private entities buy the bills, notes, bonds.
We bought for $47,900 in ‘94 and pay it off next March…
We were getting offers on the mail in the $350K range 3 or 4 years ago, now they are down around $260K, but about 1 a month instead of 4 or 5 a week.
Every penny created by the Fed was a penny spent by the Congress through spending bills or continuing resolutions. Our party is just as much to blame.
Planned Parenthood has been funded for decades.
Obamacare has been funded
Banks have been bailed out
DEI has been implemented throughout the government
Wars have been fought and innocent people have been killed
College programs teaching hatred of white men have been paid for
Stimulus payments have been sent out
Elections have been stolen
Innocent people have been persecuted by the Department of Justice
10 million invaders are getting monthly stipends
etc...
The cowards who we keep electing still haven’t found the hill they want to die on to stop paying for the destruction of our country.
The number I remember is my first (fully furnished) apartment after I graduated from college in 1974.
It was a nice one bedroom in Dallas. The complex had a swimming pool and other amenities in the Love Field area.
The rent was $155 a month.
https://www.rentcafe.com/average-rent-market-trends/us/tx/dallas/
The average rent today in Dallas is ten times that.
As a general rule the value of assets will double every 20 years at the feds target rate of inflation of 3%.
so that home would have been near $600,000 by now even with good interest rates.
Just saying
The handouts being given to these illegal aliens is one of the primary drivers of inflation and housing price rise. There are other reasons, particularly energy costs due to the dems hatred of oil, but if you take out the excess and artificial demand supported by the government, then the oversupply will force prices down for housing.
Lower the artificial demand and you get prosperity, but not so many new dem voters.
De-dollarization has consequences!
You want to be really pissed off? My grandparents bought their house for 2,000 in 1941. Now it’s worth 850K.
One might celebrate that their home’s value has never been higher until one considers that the cost of moving to a different home has also never been higher.
Not everyone buys a fixer upper. Most buy ready to move in homes. 47.9K in 1994 needed massive overhaul. Probably gutted.
155 today is worth close to a thousand dollars.
“the feds target rate of inflation of 3%”
https://www.richmondfed.org/publications/research/econ_focus/2024/q1_q2_federal_reserve
2%.
The relevant question is—have salaries gone up at that rate?
You have to adjust the $2,000 for inflation.
Property taxes on a 180K home I can afford, on a 770K home? NO
I sold my stick built home on 1/2 acre for a loss, took what I had and bought a Manufactured home with cash, and a 5 year loan of $300 a month. I own it outright now, and can barely afford to live in WA state.
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