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The Housing Bubble Explained in One Little Gem of an Excerpt...
Submitted by Thad Beversdorf via First Rebuttal blog,
For some reason I feel like this is a good time to review what we can expect when our government and its agencies attempt to create wealth out of thin air. We can see the absurdity and hubris of our policymakers who believe they can circumvent economic laws in the following excerpt from the “The National Homeownership Strategy: Partners in the American Dream”. This is a document that was put together by HUD and some other private and public stakeholders at the request of President Clinton way back in 1995. Isn’t it amazing how poor policies that seem so right at the time, to some, end up kicking us in the ass for decades. And as much as the government has gotten comfortable with the storyline suggesting banks are responsible for the entire mortgage bubble mess of the mid 2000′s, it was, in fact, all started by government agenda. Have a look at this little gem which I am suggesting is the document that led us to the economic devastation from which we are yet to crawl out.
For many potential homebuyers, the lack of cash available to accumulate the required downpayment and closing costs is the major impediment to purchasing a home. Other households do not have sufficient available income to to make the monthly payments on mortgages financed at market interest rates for standard loan terms. Financing strategies, fueled by the creativity and resources of the private and public sectors, should address both of these financial barriers to homeownership.
And while we all love a bit of creativity in life, maybe best to avoid creativity in an effort to ignore risk fundamentals. Yet our government was certain it could defy gravity. A child could tell you that if a person doesn’t have sufficient money to pay back a loan, well they shouldn’t have a loan in the firsplace. And so to force banks to lend depositors’ money to borrowers who have neither the required down payment nor the cash-flow to cover monthly payments is simply absolute unadulterated stupidity. Most of us, if we had been made aware of that thought process, would have put a stop to it straight away.
So what lesson did we learn the hard way? Looking around today, absolutely nothing. Our government officials and policymakers continue to operate under the presumption they are gods, not subject to the laws of this world. Despite creating such immense devastation last time around they have actually convinced themselves that they are not responsible (evidenced by the $350 billion they have pillaged from the banks in the name of justice for having created the housing bubble). And so by not acknowledging their mistake it allows them to still believe they can make pigs fly. Specifically, the central bank is printing incredible stocks of money and pushing it directly into the stock market in an effort to create economic growth from nothing. Their storyline is that such a strategy will create so much wealth at the top that it will spill over onto the rest of society. They also believe there will be no consequence to printing an unprecedented supply of dollars despite the laws of economics very clearly telling us there most certainly will be consequences.
Now while they have managed to delay the inevitable devastation, it is coming. You see everything is a trade off. You can create long drawn out overpriced markets but ultimately fundamentals will trump all and the subsequent recalibration will be that much more painful. The fundamentals always come back into the equation. Like anything, if you want to reduce the iterations you can but each iteration will then be larger. Let me show you what I mean by reviewing historical market trends.
The following charts depict monthly returns (green line) and S&P price level (blue line) with a 24 month moving average (black line). Note each chart depicts a different time period. The first chart is 1950 to 1981, the second is 1981 to 1993 and the last chart is 1993 to present. I’ve separated them in this way because there are 3 very distinct characteristics that are present between the three periods. Look closely at the 24 month moving average and compare them across the three periods.
What we discover from the first chart is that between 1950 and 1980 we see very even cyclicality in the 2 year moving average of quite moderate positive peaks and negative troughs repeating every 2 or 3 years. However, subsequent to 1981 we see something quite different. Our 2 year moving average no longer has negative troughs. In fact, the 2 year moving average stays positive and very calm from the end of ’81 through to mid ’93. The third chart takes us into the extreme bubbles phase. Here we see a strong positive trend with more variation than in the previous phase but with intermittent significant drawdowns. This is different from the first phase where drawdowns were very regular but minimal in size and not catastrophic. Whereas in this latest phase we have much longer periods in between drawdowns but each drawdown is many times more severe than in the first phase.
So this all begs the question why? What caused the normal market cyclical iterations to change so significantly seemingly out of nowhere? Well think about Fed policy between the three phases. In the early phase our monetary policy was constrained by Bretton/Woods. The second phase coincides with Volker taking over as Fed Chair and implementing very tight monetary policy with a focus shift to inflation control and so limiting money supply expansion. The final phase corresponds with a very sharp increase in M2 expansion that continues today.
And so these variations in market trends seem to correlate to the underlying monetary policies. Certainly there are significant changes within the sophistication of the market itself however, human behaviour is the same over time and markets react to market forces the same way over time. And so what is different then are the underlying market forces. And we see three very distinct market trends indicating there are three very different underlying market forces between the three periods. Understanding these differences should make it easy to identify and acknowledge how monetary policy is affecting markets.
There is perhaps no natural best trend but the people should decide which market behaviour suits what we want out of a market and then apply the appropriate policies accordingly. If large bubble build ups followed by infrequent but devastating crashes is the objective well then it appears our policymakers are right on point. But let’s try to understand exactly what is taking place.
You can see the acceleration of M2 expansion in the mid 1990′s that has yet to slow down. But money supply is not the only major underlying economic shift. Thing is if we are allocating that money supply efficiently then economic growth would be extraordinary and that would support the notion of all time high markets. So let’s see how efficiently we are deploying our money.
We can see back in the ’60′s and ’70′s efficiency of money allocation was fairly steady around 1.75. Then into the Volker years money velocity improved slightly in the first half of the decade and then really took off toward the end of the ’80′s and into the first half of the ’90′s. However, monetary efficiency seems to have peaked around the time M2 money stock started into it’s hyper-acceleration phase in the mid 1990′s. Since then monetary efficiency has been a falling knife, yet to hit the ground. And if we look at the next chart it really ties this altogether for us.
Right up until the early to mid 1990′s we were allocating money to economic boosting investments. Things like fixed capital reinvestment. However, toward the mid ’90′s we began to reallocate money toward financial markets and away from economic investments. This trend too continues today. The end result is that our economic policymakers and really the consciousness of society is so narrowly focused on “The Market” that we seem uninterested in all things not securitized. And what this suggests is that once again our policymakers believe they can ignore economic laws. That they can somehow create economic growth from nothing.
Last time it was handing out houses to folks who had not earned those assets in hopes that would somehow become real. This time its printing endless amounts of dollars, sticking them in the stock market money machine and expecting that to somehow create economic prosperity to all. It is mind boggling that men with so much power can be so incredibly thick. The hubris is par for the course with such power, but one would not expect such stupidity. The real ugliness of it all is that while those on top will ultimately create more wealth from the coming devastation, the vast majority of Americans have been forced to play along. Forced to put their savings in the money machine that is now the only game in town.
And so when it does inevitably all come tumbling down only 6 years after the last policies failure, it will mean the end for so many. And because those stories would reflect poorly on the prominent men whose stupidity led to such destruction those stories will not be told with truth. They will be told as though retirees were taking outrageous risks late in life when everybody knows you should not be in the market. Just as it was the banks, the borrowers and the brokers who were solely responsible for the housing bubble that devastated so many, including the folks you never hear about who lost 30% equity in their homes but continued to quietly and responsibly pay their mortgages. Yes once again those responsible will profit from their misguided policies and will bear no accountability for the horrible consequences of their decisions. Ah yes, America…. ain’t she wonderful!
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<--US real estate will tank before dollar
<--Dollar will tank before US real estate
If you believe, as I do, that the run up in the dollar is really the connected, and "Chosen," ones juicing their escape, flight, to Europe, and the eastern Med., then housing will drop first as they bail.
The key is to watch what the Ashkenazi in the DC US are doing. If they are quietly selling, like many in, and around, Chicago have been, you may want to take notice.
"Follow the money, and track the Jews."
The banksters need to repay us.
Downsize to a Chevy.....literally
Not a Chevy, but a "mobile micro-apartment."
"The housing market is up yet again this month on the sharp rise in demand for mobile micro-apartments. Coincidentally, so are used car sales."
The banksters need to repay us.
Sorry but the housing bubble already popped really big. The little crap we've seen over the last two years is nothing. Household formations since 2006 are at 50 year lows. Eventually, one way or another, those people will form households. Given, it might be in rentals, but ultimately it translates into housing units financed by someone nonetheless. Point being, the rise in home values over the last two years is nothing compared to the stock market, so I find the "housing bubble" stories to be lacking in ammo. 2014 was not a great year for housing, nor was it a "bubble burst."
Given there are pockets driven by the beneficiaries of our central bank policy, but they are pockets, not representative of the real housing market nationwide that impacts 95%+ of Americans.
Good points.
When the collapse first occured, some areas collapsed completely (Detroit) and others had huge declines (Vegas, Arizona, Florida). As you point out, some areas didn't decline much at all, like San Francisco, NY and DC.
I'm in one of the areas where prices haven't declined much if at all, but the market looks like it should. Prices are high (within 10% of the previous peak) in spite of high inventory, many foreclosures and many vacancies (on mid-level homes).
Perhaps expecting 30-40% price declines is unrealistic. I don't see any other way for the excess inventory to be sold, but if Fannie/Freddie owns them prices may stay the same. After all, letting prices fall would indicate a failed policy and reduced tax receipts for the local govt; the fed doesn't want that.
30-40% declines are VERY realistic ,, just because you live in a money bubble supported by high tech or gov't workers doesn't mean you're immune when the money stops.. Where I'm at in FL we declined 60-65% and are now "only" down 40% or so... At one time beachfront was selling at 85% off because NOBODY could afford the insurance. Condo's similarly were early in the collapse priced as much as 90% off in the areas with a lot of foreign ownership (condo's as vacation rentals).
Ain't got no home.
https://www.youtube.com/watch?v=atCwKBeq76w
Clarence "Frogman" Henry
Ride the wave like surfBort...
http://www.hedgeaccordingly.com
Dollar bulls love the dollar.
Dollar bears love the dollar
Americans love the dollar
Chinese love the dollar
Keynesians love the dollar
Deflationists love the dollar
Inflationists love the dollar
Weekly close analysis
http://investfts.blogspot.co.uk/2014/12/weekly-closings-stocks-oil-gold....
Housing Bubble 2 Goes Nuts: San Francisco Home Sales Plunge 20%, Prices Soar 27%
http://investmentwatchblog.com/housing-bubble-2-goes-nuts-san-francisco-home-sales-plunge-20-prices-soar-27/
"For some reason I feel like this is a good time to review what we can expect when our government and its agencies attempt to create wealth out of thin air."
Government, and their masters, the Zionist banksters, have no intention of "creating wealth out of thin air." They steal byway of schemes they hope will buy them time enough to escape discovery, and avoid justice and retribution for their thefts.
The banksters need to repay us.
BOSKIN allowed them to print as much as they wanted while saying the inflation is low.... Thanks Bernak
A fiat based system must grow. The real world was too small to contain all the promises of debt repayment that were made in the process of creating all the needed money so derivatives were needed. Those in charge are not stupid or exceptionally evil. They are faced with allowing the system to collapse today or trying to put it off until tomorrow. they have chosen the latter.
come on...what would you have done?...allow the thing to explode and have folks point out the alternative?
...didn't think so.
Oddly enough gold still looks good. The price has been stable for years and it is due for a 24x revaluation like what happened between 1971 and 1980. Most of that took place after the mid 70s when Americans were allowed to own gold....get some...if you ask me...
is it me or does this guy kinda miss the whole point... giv loans out and collect dem fees cause they just print or ditgitize money out of nothing except of course those fees you gotta pay... WAKE DA F CK UP....
The people that borrowed the money are equally culpable as the people who lent it.
As a young engaged dude in the 80's I had real estate agents and loan officers tell me over and over again that my Fiancee and I we were "fine" taking on a mortgage that would be over 50% of our take home pay.
Don't tell me that the banks and their officers who are pushing loans, ARM's, and FHA/HUD commitments and making a bonus aren't the much more complicit - especially when they have a fiduciary duty to depositors and shareholders which they shirk with prejudice.
Problem being banks are no longer banks, the loans are backed by taxpayers, they are then packaged into 100X levered derivatives, and the FED and the rest of the corrupt .gov backs the bankers before citizens, and then bails the fuckers out on our dime!
No, the "you borrowed it you are culpable" line is a relic of history when: the Federal Reserve didn't exist, the currency was backed by PM's, and there was a semblance of the rule-of-law.
Storm the Bastille!
When the banksters didn't like the laws, they lobbied the govt and got the laws changed. Don't ANYONE forget that.
The old measure was that if you spent more than one third of your income on your mortgage then you were experiencing mortgage distress!!! And that was back in the days when a man could support a house, a car, a wife and family ON ONE INCOME.
Anyone with eyes should have seen the problem. For those who missed it, try this for starters:
https://www.youtube.com/watch?v=akVL7QY0S8A
It's way past time the idea of mortgage distress was resurrected. Somewhere along the line someone decided that banks and borrowers should decide how much they could borrow. Let the fwee markits sort it out. Trouble is, the only "free markets" was the little people bidding up the price of housing to unaffordable levels with money they could not afford and should never have been allowed to borrow. Everything behind the scenes was, and still is, fixed.
Before the chickens had a chance to come home to roost:
Idiots and desperate people bought homes at high prices.
Sensible people did without. They either paid too much to compete with the idiots or they could not afford to buy.
Idiots and evil people lent money to idiots.
Consciencious bankers either quit or under-performed - because they did not lend to idiots.
Good bankers under-performed and therefore were either fired or passed over for promotion.
When the chickens finally came home to roost, when the free markets were supposed to correct what the "free markets" broke, the banksters got bailed out and bonuses instead of being fired. The so-called "Too Big To Fail" were never "Too Important To Leave Idiots In Charge".
If a mechanic breaks my car, I don't send him another car to fix. I sure as hell don't give him a bonus. If I had a fleet of trucks and a team of mechanics broke every single truck, I sure as hell wouldn't deem the mechanics "Too Important To Fire" and I sure as hell wouldn't pay them extra. They'd never hear from me again ( except through my lawyers ).
THE BANKSTERS LOBBIED THE GOVT TO GET THE LAWS CHANGED SO THEY COULD LEND TO IDIOTS AND WHEN THEY WERE SUPPOSED TO GO BANKRUPT THEY THEN LOBBIED THE GOVT AGAIN TO CHANGE THE LAWS SO THEY COULD GET BAILED OUT. Don't anyone forget that.
PS ebworthen. You should have done your own budget. But shit happens, hey?
"THE BANKSTERS LOBBIED THE GOVT TO GET THE LAWS CHANGED SO THEY COULD LEND TO IDIOTS AND WHEN THEY WERE SUPPOSED TO GO BANKRUPT THEY THEN LOBBIED THE GOVT AGAIN TO CHANGE THE LAWS SO THEY COULD GET BAILED OUT. "
Now they are doing it a second time, with the bankruptcy laws for banks being changed the other week and bailouts for derivatives, this week.
"Don't anyone forget that."
Didn't stop them from doing it again.
Everything is just fucking peachy...PEACHY I TELL YOU......
It was in the mid-1990s that NAFTA and the WTO went into effect. That is why our economy's allocation of money shifted from investment in economic activity to financial asset speculation. The guys who were doing the historical fact checking for this article might not yet have been teenagers when these laws changed everything:
Right up until the early to mid 1990?s we were allocating money to economic boosting investments. Things like fixed capital reinvestment. However, toward the mid ’90?s we began to reallocate money toward financial markets and away from economic investments. This trend too continues today.
Globalism is the the problem. Return to nation-centric, populist economic policies, and money will be returned to the productive economy.
"Globalism is the the problem"
The problem is the inflation/deflation cycle. What was built up on the up phase of the cycle, is now being torn down on the down phase of the cycle.
Globalism may be the mechanism, but deflation is the irresistable force. What happened in the 1920's and 30's is repeating itself.
Our local DA just got a 100% approval from the county commissioners to give his cronies a pay raise with confiscated funds. Those same commissioners are trying to stick us with a $40M bond to fix our roads and bridges. Their fiscal responsibility is overwhelming sometimes. I look forward to when those cocksucker's tax base gets halved with the upcoming housing crash. I'm sharpening my pitchfork.
In 2005 and 2006 prior to the housing collapse many people were looking at second homes, for investments or as a vacation getaway. Today in much of America's Midwest and other parts of the nation many houses remain empty or under leased.
Many of those people excited about buying years ago have shed the extra homes and some have doubled up with family or friends reducing the need for housing. In many areas we are pushing on a string and calling it demand when someone who can barely pay the rent is encouraged by the government to buy a house they can neither afford or maintain. We have a shortage of "qualified" buyers and renters. More on this subject in the article below.
http://brucewilds.blogspot.com/2013/12/super-low-interest-rates-disservive-to.html
" This little gem which we are suggesting is the document that led us to the economic devastation from which we are yet to crawl out."
It isn't a document that lead us to the economic devastation we are in now. Alan Greenspan wanted a housing bubble and worked to that end.
"This is a document that was put together by HUD and some other private and public stakeholders at the request of President Clinton way back in 1995"
So? That documenmt was not the head of the Federal Reserve, who took lending standards to ZERO and the FED rate to 1% and holding it there to generate a housing bubble.
There was no housing bubble in 1995, 1996, 1997, 1998, 1999, 2000. That document did not cause a housing bubble.
The Nasdaq bubble occurred when Greenspan cut the interest rate to 4.75% in 1998. The 1929 bubble occured when the FED gave the market "a little coup de whiskey", spiking the market punchbowl.
If that document never existed, there still would have been a housing bubble in 2005.
The "Gov" doesn't DO anything that it isn't instructed to do, by the special interests that own ALL of it.
Remember, "If voting made a difference, it would be illegal".
The system can NEVER be changed by working within the system, that is built into the design.