Housing | timiacono.com - Part 2

The Fed’s Bubbles

There is absolutely nothing new in the graphic below from this commentary(.pdf) by IceCap Asset Management, but something about the simplicity of the message being conveyed was striking and it seemed worth reproducing here today. Of course, it wasn’t all about interest rates, but you’d think that by now someone at the Fed would acknowledge rates that were too low for too long played some kind of role in the many recent boom-bust cycles.

Picking up the story at the beginning of item 2 above, they note:

Of course 4,000 Dow Jones Industrial and NASDAQ points later, the sheep started to lazily admit that perhaps this new post-Y2K economy wasn’t all that it was cracked up to be. Not to worry, once again the American central bank mounted their ponies and rode the global economy straight into several years of ultra-low interest rates. The hope (there’s that word again) was that really cheap money would encourage people, companies and governments to borrow and spend again.

And borrow and spend they did – right smack into the biggest housing bubble in economic history. Day traders became passé, and the newest game in town was flippin’ houses. Rich people flipped mansions, plumbers and teachers flipped suburban homes and even Vegas strippers got in on the act and flipped condos among other things. By the time it was over, the entire world was flipped upside down – courtesy of the US Federal Reserve and their interest rate machine.

And this brings us to the next global crisis, which we assure you is on its way.

The Commerce Department reported(.pdf) that new home sales fell 3.3 percent last month, from a downwardly revised annual rate of 455,000 in January to 440,000 in February.

Though bad winter weather may have been a factor, more evidence of  slowing momentum in the U.S. housing market was seen via the first back-to-back year-over-year home sales decline since mid-2011, a development that was influenced by the last round of government home buying incentives that, as shown below, did little for the market at the time.

It’s also worth remembering that winter data for the housing market can be full of disinformation due to extremely low buying and the resulting big seasonal adjustments.

In other housing news this morning, the Case-Shiller Home Price Index fell 0.1 percent from December to January but, when seasonal adjustments were applied, prices rose 0.8 percent. From a year ago, the 10-City and 20-City Indexes rose 13.5 percent and 13.2 percent, respectively, with Las Vegas and San Francisco leading the way in home price gains.

Where Can a Teacher Afford a House?

According to this item at the WSJ Economic Blog via data from real estate firm Redfin, school teachers might want to check out places like Rockford, IL, St. Cloud, MN, or Sherman, TX if they aspire to be homeowners as these are some of the very few places in the country where the combined labor marker/housing market conditions are favorable.

Here’s a screenshot of the annotated Google map (it’s interactive at the WSJ):

There are lots of red dots on the map and the reddest of them all is San Jose, CA, a town that is close enough to the Bay Area/Silicone Valley real estate market madness to make it all but impossible for any third grade teacher to even think about owning a home there, even with their average $71,000+ salary.

Conditions are better to the east in Modesto, CA, but who would want to live in Modesto?

Reading, PA is high up on the affordability list (that’s the blue dot nestled in with all the yellow and red ones on the East Coast) but, aside from that, teachers should look inward.

A Different Kind of U.S. Housing Bubble

The Marketwatch headline reads Investors Retreat from Housing Market and this story was no doubt prompted by yesterday’s existing home sales report (as detailed here) that was more cause for concern that investors – a key drivers behind the property market recovery in the U.S. – are moving away from the housing market after big price gains in recent years.

Here’s another look at the same development from this item at Mark Hanson’s real estate blog where all-cash sales are charted (there’s a good deal of overlap between all-cash sales and investors purchases, but, obviously, they’re not the same thing).

Of course, the other flashing red warning sign about the sustainability of the housing market rebound is the dearth of first-time homebuyers. Normally accounting for about 40 percent of all purchases, they have yet to crack the 30 percent mark in recent years, rising from just 26 percent to 28 percent last month.

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