For well over five years now we’ve been told that the US was in recovery and that as most the biggest risk was a potential double dip or worse a slow down to the recovery.
The reality however was that the US never experienced a real recovery (unless you work at one of the “chosen” firms on Wall Street).
Housing has re-entered a bubble driven by liquidity, not first time homebuyers entering the market.
The key relationship for housing is home prices relative to income, NOT nominal prices. Stocks are valued relative to earnings. Homes have to be priced relative to incomes.
Today, the median US income is $51K. The median home price is $328K. So homes are priced at 6.4X incomes.
To put this into perspective, in 2007, the housing bubble was only marginally higher than this with homes priced at 6.8X incomes. So housing, which is alleged to be in a recovery, is not much more affordable today than it was in 2007… at a time when home prices were more overpriced than at any point in the last 100 YEARs.
Speaking of incomes, they remain WELL below their 2007 peaks… which were in fact below the 2000 peaks. In fact, the median income in the US today is effectively the same as back in 1987.
Again, NO recovery to be seen here.
Indeed, the number of people of working age who actually HAVE jobs is back to levels no seen since the 70s. Gotta love that recovery… when the percentage of people working is the same as it was back when the US was in a recession four decades ago!
At the end of the day, the entire economic landscape is very simple to understand. The economy grows when people make more money and spend that money on things including homes.
Lower incomes= lower spending= lower economic activity. Sure, you can reflate a credit bubble in which spending rises briefly due to people having easy access to credit…
But at the end of the day, all this does is set the stage for another economic collapse when people once again default on their credit card payments/ mortgage payments.
That day of reckoning is coming… It’s just a matter of time.
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Phoenix Capital Research