Housing | timiacono.com - Part 5

The latest Gallup survey on investment preferences in the U.S. puts real estate ahead of gold and stocks for the first time in at least a few years in yet another example of how most people (at least in the U.S.) simply follow established trends.

Interestingly, those favoring real estate as the best long-term investment rose to as high as 50 percent a decade ago when the prior housing bubble was inflating.

There’s also a breakdown of preferences by income, age, and political party affiliation. Not surprisingly, those with higher incomes favor stocks and real estate over other investment choices and the appeal of gold goes up as income goes down.

By a wide margin, younger Americans think more highly of Savings accounts/CDs than do other age groups, but the most interesting part of this survey (at least to me) was how views toward equity markets change  based on party affiliation. Some 30 percent of Democrats think stocks are the best investment, but only 26 percent of Republicans agree, yet just 19 percent of independents also see it this way.

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The Commerce Department reported(.pdf) that U.S. housing starts rose 2.8 percent last month, from an upwardly revised seasonally adjusted annual rate of 920,000 in February to 946,000 in April, however, this was below the consensus estimate of 955,000 that was expected, at least in part, due to better weather in the spring after a severe winter.

After jumping in February in anticipation of warmer temperatures in most parts of the country, permits for new construction actually declined last month, falling 2.4 percent from a downwardly revised rate of 1,014,000 to 990,000.

Both measures of U.S. homebuilding activity came in below consensus estimates that were a bit higher than they would otherwise have been, working on the assumption that there would be a larger spring bounce than usual, however, that was not to be.

On a year-over-year basis, permits for new construction – a key leading indicator for the industry – rose 11.2 percent, however, housing starts are actually lower than a year ago, down 6.4 percent, in what was the widest contraction in almost three years.

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Shiller on Bubbles and Busts

Rounding out today’s troika of stories on rapidly inflating financial bubbles (that in some parts of the world, for example the U.K., are seen as genuine progress for the economy) comes this Wall Street Journal interview with Nobel Laureate Robert Shiller who talks about the recent history and future of bubbles and busts.

Shiller minces no words in blaming his own (economics) profession, calling it “unnatural” when asked how to explain what we’ve seen in financial markets over the last few decades.

It’s pretty hard to argue with that assessment and it’s laughable to think that some dismal scientists still believe in such folly as “efficient market theory”, “rationale actors”, and the value of economists’ vaunted “models” today given the perverse incentives that are provided on Wall Street and condoned by the Federal Reserve where, once, it was believed that investment banks are “self-regulating”.

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Lord Turner Warns on U.K. Housing

They continue to talk about how unbalanced the economic recovery is over in the U.K. and how a lot of people seem to be fine with that, this Telegraph story following on the heels of Jeremy Warner lamenting “This Guilty Return to Pre-Crisis Norms” yesterday.

Today, it’s former Financial Services Authority Chairman Lord Adair Turner.

Britain’s property obsession has left the country at risk of another major financial shock, the former head of the City watchdog has warned.

“We have made it incredibly favourable to buy houses,” Lord Turner told The Telegraph. “The supply issue is very important and we’ve got to increase the supply of housing because otherwise we are just piling up very strong incentives to buy housing, very strong incentives to borrow money to buy housing but against a fixed supply.”

If you do that the only thing that can give is the price.”

Lord Turner also said he was “worried” that the UK was “developing a recovery which is simply returning to the very issues that led us to this problem in the first place.

“Even the Office for Budget Responsibility has said the only way we’re going to get growth back in the next five years is for the [debt to income ratio] to go all the way back to 170pc again. If in five years time debt has gone back up to 170pc, and if interest rates have returned to 3pc, 4pc or 5pc, then a lot of people are going to be struggling.”

As noted here recently, it really does seem to be a case of policymakers in Anglo-Saxon countries almost admitting that “financial bubbles are about all we have left”.

It’s as if they say, “Let’s get a really good asset bubble going again – stocks, housing, whatever – and we should have a few good years of economic growth before it blows up.”

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