Adios To The Housing Market

That popping sound you just heard is the Fed popping the housing bubble.  The housing bubble that it inflated with ZIRP and zero-bound credit requirements to qualify for a mortgage.    But first, let’s get this out of the way:  Goldman’s Jan Hatzius – apparently the firm’s chief clown economist commented that the Fed’s “faster pace” of rate hikes reflects an economy close to full employment.  That statement is hand’s down IRD’s winner of “Retarded Comment of the Year by Wall Street.”

I guess if an economic system in which 38% of the working age population is not working can be defined as “full employment” then monkeys are about to crawl of out Janet Yellen’s ass.  I guess we’ve witnessed more stunning events this year…

Before we start assuming the Fed will raise rates three times in 2017, let’s consider that Bernanke’s “taper” speech was delivered in May 2013.  3 1/2 years later, the Fed Funds rate has been nudged up a whopping 50 basis points – one half of one percent.

I hope the Fed does start raising rates toward “normalized” rates, whatever “normalized” is supposed to mean.  Certainly there’s nothing “normalized” about an economic system in which real rates are negative – that is to say, an economic system in which it’s cheaper to borrow money and spend it than it is to save.

Having said all that, put a big pitch-fork into the housing market.  Notwithstanding the highly manipulated “seasonally adjusted annualized rate” data puked on a platter  and served up warm by the National Association of Realtor and the Census Bureau – existing and new home sales data, respectively – the housing market in most areas of the country is deteriorating at an increasing rate.    I review this data extensively and in-dept in my Short Seller’s Journal.

Even just marginally higher mortgage rates will choke off the ability of most buyers to qualify for anything less than an conventional mortgage with 20% down and a 720 or better credit score.   With a rapidly shrinking full-time workforce – the Labor Department reported that last month the economy lost 100,000 full-time jobs – the percentage of the population that has a 720 credit rating and can afford 20% is dwindling rapidly.

The Dow Jones Home Construction index is down 2.5% today.  What will happen to the stocks in that index when the Fed cranks back up it’s “we’re raising again” song and dance?

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Despite the rampant move in the Dow/SPX since the election = while the Dow and SPX were hitting all-time highs almost daily – the momentum was not enough to propel the homebuilder stocks even remotely close to a 52-week high.  Hell, the 50 dma (yellow line) has remained well below the 200 dma (red line) and has not even turned up.  THAT is the market sending a message.

Here’s a weekly version of the same graph that goes back to 2005, when the DJUSHB hit an all-time high:

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When looked at it in that context, one has wonder where this great housing boom has been hiding? The stock market certainly didn’t price in a booming housing market. That’s because the truth is that the housing market since 2008 has been driven by massive Fed and Government intervention. The intervention enabled a segment of the population to buy a home that could not have otherwise afforded to buy a home. It was really not much different than the previous bubble fueled by liar loans and 125% loan-to-value mortgages. As I detailed yesterday, the system is now re-entering a cycle of delinquencies, defaults and foreclosures.

If you are thinking about buying a home – primary, vacation or investment – wait.  You will be happy you waited.  Prices have been pushed up to near-record levels by 3% down payment mortgages and credit assessment that gears the amount of mortgage available to a buyer based on maximizing the monthly payment based on monthly gross income.  That system is over now.  Prices and volume are going to spiral south.

If you need to sell your home, you better list it as soon as possible.  You will find that you will be competing with a surge in new sellers that descend like locusts.  “Price reduced” signs will blossom everywhere.  Just like 2008…

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11 thoughts on “Adios To The Housing Market

  1. Hahahaha!!!

    Have you heard from the THEATER OF THE ABSURD?

    CIA Operation Mockingbird FAKE NEWS or PROPAGANDA PRESSTITUTES now say:

    Vladimir Putin PERSONALLY hacked the US elections!!!

    Pinch me, pinch me, pinch me, which country am I in? Actually, what planet am I on? What year is it? Which alien species have effectively hijacked the affairs of this planet?

    http://www.nbcnews.com/news/us-news/u-s-officials-putin-personally-involved-u-s-election-hack-n696146

  2. I’m honestly curious…WHO is buying US$ at nosebleed, BTFATH prices now???

    Is this just momentum junkies – the kind who kneejerk buy anything “rising” and sell anything “falling”? Or is there some more fundamental need to buy US$?

    SOMEONE, somewhere, will lose their shirt…

    1. Could be capital flight. If so, it’s self-limiting since at some point the affected nation (China?) will have to either sell dollars or raise interest rates to stop further currency devaluation, which would spark even more capital flight. Same goes for EU.

      Maybe that’s why China is liquidating treasuries – to raise dollars for impending defense of the yuan in offshore markets.

      1. That’s the Zerohedge/mainstream financial media narrative. They hold reserves other than dollars. Why not sell those? They are trying to unload their Treasuries w/out completely trashing the market. Imagine what would happen to the bond market if China announced a bid wanted in comp for $1.1 trillion in Treasuries. They are working with Russia to remove the dollar’s reserve status and the U.S. doesn’t like it which is why there is an escalating level of military aggression toward Russia and China by the U.S.

  3. Kudos on the post Dave.
    BTW,
    what are you experiencing in your local,
    and/or greater Denver Metro area
    regarding whether or not prices are rolling over,
    days listed/ to close,
    and rents?
    Thanks &
    Cheers

  4. Hey Dave and others-

    It’s Sim again. My myopic mind is loking at gold at 1129. Hmmm. In $US. Like that dipshit said, near highs in th british pound or something. I use US dollars. Not myopic to understand that. I have gold and silver, and have finally cut the cord. It wil be half a generation to the collapse. Until then, i will watch you dig in. Good luck.
    Sim

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