Posted on 05/27/2022 7:44:03 AM PDT by Browns Ultra Fan
The numbers keep getting worse.
The University of Michigan Consumer Survey showed a decline in May to 58.4 (100 is baseline). Soaring inflation is a likely culprit.
But the truly horrible survey result is the UMich Buying Conditions for Houses, plunging to 45. The reason? Crazy, expensive house prices courtesy of The Federal Reserve and rising mortgages (also, courtesy of The Federal Reserve).
The buying conditions for houses is now the lowest in the history of the University of Michigan consumer survey. In fact, consumer sentiment for housing is far lower than during the awful housing bubble burst of 2008 and the subsequent financial crisis.
Here is Fed Chair Jerome Powell wielding his monetary bat called “Lucille.”
(Excerpt) Read more at confoundedinterest.net ...
Slowing down the housing market is HOW you bring down inflation.
I disagree. I think the bigger culprit is that anyone who was even thinking of moving or buying a first home in the next five years has already done so.
At the end of 2019 I had no interest in moving. Within six months I had made up my mind that I was not only going to move, but I was going to move into a much bigger home that was going to become the new "headquarters" of my business. It took two years to get everything lined up, but I found the perfect place and made it happen.
“..Biden and Powell are clubbing us to death....”
Very good analogy.
We’re like baby seals be clubbed to death for our pelts (assets).
No way would I even consider buying until prices come back down a good bit. The price run up in the last 2 years has been ridiculous.
Everybody and their mother knows that a housing price correction is inbound.
The only people that deny it are those in that want to get a property sold.
Correct.
And yes, the only way to bring down inflation is to soak up 20 years of QE.
It’s going to suck. Stock market and housing market are going to have to come down quite a lot. Ultimately, so will wages which are also inflated ($15 is not enough to get kids to work at a fast food joint, that is nuts).
Volcker. Guy had balls.
As long as the fed rate is moving up, and keeps moving up, and the market believes it will keep moving up, then the Fed may not have to do what Volcker ultimately did.
You run a confidence scheme like this long enough, the only thing that will work is convincing those behind the con that the new con artist is serious and can do what they say they are going to do, whether the new con artist actually intends to do it or not.
And as long as gasoline and diesel keep going up, so will inflation. Period. It’s the only reliable indicator that matters.
We’ll be out of the recession (been in one since 2020) when men return to strip clubs. Best ungameable leading indicator of recession. You can game copper prices, but you can’t prop up t!tty-bar futures.
Interest rates are high and going higher.
Large companies are buying up homes.
Biden’s high gas prices, high food prices, and everything else prices mean fewer people can afford to buy a home.
Good post, but I disagree about this particular point.
Those things aren't coming down, just as the stock market and housing prices never came down in the 1980s.
For most products, services and commodities, inflation-fueled increases are likely to be permanent -- and "taming" inflation is just a matter of getting the rate of currency devaluation down to a manageable level. If you bought a home in 2021 for an inflated price of $400,000 or more, I can't envision a scenario where it is ever going to be worth $350,000 again.
Fraud vitiates everything eventually.
First it was residential mortgages. The next big shoe to drop is commercial real estate mortgage fraud. Massively inflated figures on total sales on all addresses in a given complex, for example.
Funds buy the bond. Businesses leave their keys on the counter. Complex closes. Mortgage holder on the complex throws their keys on the counter.
That’s on the way. Mortgage and credit card defaults are moving up quickly.
They will be giving away free massages to anyone willing to open up a business in a Class A office building soon.
Work was the last place people could gather and talk. Churches fell away, as did bars (DUI emphasis, etc).
The water cooler was the last place people could get together and say, “This sh!t is crazy, should we do something about it?”
Then COVID was created, and we stayed home for two years. Now only complete idiots or people who have to go to work to perform their tasks are volunteering to go to the office.
They’ll shut the internet down for a bit, and then bring it back up. When the smoke clears, it will be 1984 in full effect.
Fraud vitiates everything, including prices eventually.
Congratulations - great decision.
Let's look at the steps in a (simplified) hypothetical residential mortgage default to see how this plays out ...
1. Buyer purchases a home for $400,000. He gets a $350,000 mortgage on the property from a Lender.
2. Seller takes the $400,000 and does something else with the money. For the purpose of this example, we will assume that the Seller has no mortgage to pay off.
3. Lender sells the $350,000 mortgage to Investors through a mortgage bond (a collateralized mortgage obligation, or CMO).
4. The housing market collapses before a single payment is made on the mortgage, and the home is now only worth $300,000.
5. The Buyer defaults on the mortgage.
When you look at how this unfolds, you'll see that there are some fundamental issues that have to be taken into account regardless of whether there was any fraud at any step in this process. Let's see how this works:
A. The Lender and/or Investors may foreclose on the mortgage, but they don't want to take possession of the property. This is because the last thing they want is a $300,000 asset to cover a $350,000 liability. In addition, taking possession of the property means they will also have to take on the cost of holding the property (taxes, maintenance, insurance, etc.). This is why the preferred option for the Lender/Investors is to keep the Buyer in the property and have him pay the taxes, insurance, etc. even if no mortgage payments are made.
B. As long as the Lender/Investors never take possession of the property, they can "pretend" that it's still worth at least $350,000 and carry it on their books accordingly. Their goal is to hold out long enough for the real estate market to recover without ever taking possession of the property.
C. The big "elephant in the room" in the narrative I posted above is Item #2. What happens if the Investors take a loss on the mortgage and their $350,000 investment is now only worth $300,000? They may be out $50,000 themselves, but the Seller still has the $400,000 from the original sale. The collapse of the value of the collateralized asset doesn't undo the subsequent transactions with the money that was effectively created out of thin air. This is a very important point to remember.
When it comes to real estate market gyrations, every step that is taken by the U.S. government and institutional investors is aimed at one underlying objective: Protect the value of the currency that "underwrites" the loans that are then carried through future transactions in the economy. THIS is why the U.S. government can never allow the nominal value of real estate to decline over time.
Thank you! I have been fortunate enough to make some very sound decisions over the years — mostly through dumb luck. :-)
One anecdote. My barber yesterday told me of a friend trying to sell her house. She’s had fourteen people look at it recently and it hasn’t sold yet. Up until a few months ago, similar houses in the same neighborhood sold after one or two people had viewed them. The seller is starting to get worried.
People that bought their house recently will soon be underwater.
The good news is that few of them did it with nothing down and a variable interest rate loan, so we should see much fewer defaults than in 2008.
Though if we go into a recession and higher unemployment that would very likely result in more defaults.
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