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Something Smells Fishy
Submitted by Jim Quinn of The Burning Platform
Something Smells Fishy
It’s always interesting to see a long term chart that reflects your real life experiences. I bought my first home in 1990. It was a small townhouse and I paid $100k, put 10% down, and obtained a 9.875% mortgage. I was thrilled to get under 10%. Those were different times, when you bought a home as a place to live. We had our first kid in 1993 and started looking for a single family home. We stopped because our townhouse had declined in value to $85k, so I couldn’t afford to sell. In 1995 I convinced my employer to rent my townhouse, as they were already renting multiple townhouses for all the foreigners doing short term assignments in the U.S. We bought a single family home in 1995 with the sole purpose of having a decent place to raise a family that was within 20 minutes of my job.
Considering home prices on an inflation adjusted basis were lower than they were in 1980, I was certainly not looking at it as some sort of investment vehicle. But, as you can see from the chart, nationally prices soared by about 55% between 1995 and 2005. My home supposedly doubled in value over 10 years. I was ecstatic when I was eventually able to sell my townhouse in 2004 for $134k. I felt so smart, until I saw a notice in the paper one year later showing my old townhouse had been sold again for $176k. Who knew there were so many greater fools.
This was utterly ridiculous, as home prices over the last 100 years have gone up at the rate of inflation. Robert Shiller and a few other rational thinking people called it a bubble. They were scorned and ridiculed by the whores at the NAR and the bimbo cheerleaders on CNBC. Something smelled rotten in the state of housing. We now know who was responsible. Greenspan and Bernanke were at least 75% responsible for the housing bubble and its eventual implosion, which essentially destroyed our economic system. They purposely kept interest rates at obscenely low levels, encouraging every Tom, Dick and Julio to buy a home with a negative amortization, no doc, nothing down, adjustable rate mortgage, so they could live the American dream of being in debt up to their eyeballs.
Greenspan and Bernanke were also responsible for regulating the Wall Street banks. They allowed them to leverage themselves 30 to 1. They allowed them to create fraudulent high risk mortgage products. They looked the other way as Wall Street sliced and diced these guaranteed to default mortgages into AAA rated derivatives that were then spread throughout the global financial system like ticking time bombs. As home prices rose three standard deviations above the long term average, these Ivy League educated geniuses cheered it all on. Bernanke saw no bubble, just as it was bursting. He saw no mal-investment or systematic risk from this orgy of greed and fraud. And then it all blew up in our faces, while the perpetrators walked away unscathed to pillage and rape once more.
And now we come to present day and something really smells fishy again. Home prices crashed by 40% between 2005 and 2012, putting prices back to 1978 on an inflation adjusted basis. All of the bubble gains were wiped out in the blink of an eye. Bernanke and his Wall Street owners had a real problem with this development. Wall Street banks had/have billions in toxic mortgages on their books and only accounting fraud by not having to mark them to market has kept these banks from having to declare bankruptcy. Bernanke, Geithner, and the Wall Street banks hatched their master plan to save themselves at the expense of young people in 2011/2012.
We know for a fact that real median household income is still 7% below 2007 levels and sits at the same level as 1989. We know for a fact that wages have been stagnant since 2007. We know for a fact GDP has barely broken 2% since 2009. We know for a fact the price of healthcare, food, energy, tuition, rent, and a myriad of other daily living expenses are dramatically higher since 2009. We know mortgage originations are at 1997 levels. We know housing starts are 60% below the 2005 highs and at levels seen during the 1991 and 1981 recessions. Existing home sales are 30% below the 2005 high, only up 10% from 2012 levels, and sitting at levels reached in 1999 before the boom.
A critical thinking person might wonder how median single family home prices could possibly skyrocket by 37% in the last three years when household incomes are falling, living expenses rising, and the number of houses being sold are at recessionary levels. The stinking rotting fish again sits in the hallways of the Eccles Building in Washington D.C. Janet “Yellowfish” Yellen has inherited the bubble blowing machine from Ben “Blowfish” Bernanke and has continued to inflate a new housing bubble, because one housing bubble just isn’t enough.
There is nothing free market about the 37% increase in home prices. It has absolutely nothing to do with supply and demand. It has nothing to do with normal families looking for a home. It has everything to do with the Federal Reserve’s 0% interest rates, the $3.5 trillion of QE injected into the economic gambling system, Wall Street banks withholding foreclosures from the market, hedge funds buying up tens of thousands of foreclosed homes and renting them out to the former middle class, Fannie and Freddie guaranteeing 70% of all sales, the government encouraging 3.5% subprime loans again, Chinese and Russian billionaires parking their ill gotten wealth in US real estate, and flippers reappearing in the same old places (Las Vegas, Phoenix, Florida, California).
The Federal Reserve created the last housing bubble and they’ve created the new housing bubble, along with stock and bond bubbles, with their easy money policies designed to enrich their Wall Street owners and the parasites who feed off the financial industry. Their entire plan smells to high heaven. They have thrown young people and most of the middle class overboard, while the bankers, billionaires, politicians, and connected cronies party like it was 2005 on their $250 million yachts.
Now what? The Fed says they are going to raise rates. The QE spigot has been turned off. The hedge funds are selling their buy and rent hovel investments, cash buyers are dwindling, the flippers who appeared in 2005 are back, Boomers are looking to sell and downsize, young people are already in debt up to their eyeballs thanks to the government doling out student loans like candy, the number of full-time good paying jobs continue to dwindle, and the rigged 37% price increase has priced millions of people out of the market.
The good news is the Wall Street banks have inflated their balance sheets and celebrated by giving themselves $20 billion in bonuses for a job well done. If mortgage rates rise to 4% or God forbid 5%, the entire housing complex would implode faster than a blowfish out of water. If you’ve bought in the last two years you will be underwater sleeping with the fishes like Luca Brasi in the not too distant future.
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Excellent post, Mefobills.
Logged to green you. Seen it explained many times and with differnt diction. Your version is concise and readily understood. Well done.
http://www.domain.com.au/property/for-sale/house/nsw/chester-hill/?adid=...
The link above will give readers of this website, a glimpse of the madness that's currently happening here in Sydney. This house was sold yesterday for just under AUD $1 000 000.00. Chester Hill is one of the poorer (slums) areas of Sydney. Average household incomes in this area would'nt be much more than $80 000.00.
Interest rates will only rise if the dollar is threatened and starts to drop. Until them, there will be no interest rate hikes.
The Fed will never and can never ever raise rates, they have checkmated themselves and any talk of raising rates is pure BS. They are in a catch-22 situation with no way out other than a large scale currency reset, "The dollar is dead! Long live the new dollar!" Put on your seatbelts cuz the impact is gonna be hard.....
yeah, hearing those ads on the radio about "try my system for flipping houses" again. and they'll lose their ass all over again.
i like it: http://www.collective-evolution.com/2015/05/29/live-off-the-grid-anywher...
The Fed will not raise rates, untill they will be forced by a dollar crash. To the contrary they will find an excuse to go back and print more fiat money, which will cause the dollar to crash.
I'm making over $7k a month working part time. I kept hearing other people tell me how much money they can make online so I decided to look into it. Well, it was all true and has totally changed my life. This is what I do... www.jobs-review.com
Too many Jews in the financial kitchen.
Oh....I thought this was going to be an article about Hitlery.
Yellen will cut margin rates to 10% and free up a lot moar buying.
not fishy/
back before the last crash i had the feeling things had jumped the shark when i heard a radio ad for 125 per cent home equity loans. that and all the folks blithely "flipping" houses-i couldn't help but think some of them would end up getting "flopped."
Sometime around QE1, the end of 2009 to 2010, it occurred to me that the Fed and the TBTF banks were on the same team playing a game with the market players. Some played against the Fed and the banks, some played with them, and some played it both ways.
Real estate was still shaking out, interest rates could only go down, but the DJIA seemed to put in a bottom in March 2009.
Wall Street and Washington began, in hindsight, a cutthroat game of 'keep the pot boiling' the children's game that I remember playing in grammar school.
A game the Oxford Dictionary defines as: "Maintaining the brisk momentum of something" -- spinning a top, jumping rope, buying stock ( Dow 30 stocks gave more bang for the buck.)
How much longer can the Fed and the Banks provide the capital to keep the market moving up? What happens if the Fed and the banks take their training wheels off the daily market moves?
Will a market correction snowball itself and the economy back to a 4 figure DJIA?
I don't believe this is a question of 'if'. It's a question of 'when'.
Much of the real estate that is selling in my neck of the woods are homes to be flipped, not be be owner occupied, but rented until a buyer comes along. Rental property which the buyer immediately raise the rent on to make his new property look more valuable.
The $100 (average) rent increases immediately lowers the discretionary demand of hundreds of shoppers at Target and WalMart while the bottom-up depression climbs up a notch or two.
"The good news is the Wall Street banks have inflated their balance sheets and celebrated by giving themselves $20 billion in bonuses for a job well done. If mortgage rates rise to 4% or God forbid 5%, the entire housing complex would implode faster than a blowfish out of water. If you’ve bought in the last two years you will be underwater sleeping with the fishes like Luca Brasi in the not too distant future."
I somewhat disagree with the impending doom associated with a bump UPWARD in the Fed interest rate.
The Wall Street banks are, and have been engorged with free money since 2009 and easily the next 30 years, (if not longer) worth of it. And all credit customers at this time have probably renegotiated during the last few years their loan contract to very lowest rates.
Hopefully somewhere around 4% APR, 30 yr. fixed rate, for a homeowner, for example.
As far as I can determine, I cannot find fault with low interest rates, or the ebb UPWARD if the Fed raises their rate. A contract is a contract, 30 yrs fixed is fixed, what is wrong with that?
Yes, those that run or ruin the national & worldwide markets...there is absolutely nothing I can do about their practices, or the lack of good paying jobs, etc.
But for the younger people, if they determine they can handle a loan contract, then they should be OK, with the rate.
Sometimes it isn't important to see 'the forest', just try looking at one tree at a time, and let there be joy an understanding in that.
wwxx