Housing Market

Earlier today, the US Census released its latest homeownership data, which confirmed that for what is left of America's middle class, owning a home has become virtually impossible, with the homeownership rate plunging from the lowest level since 1986, or 63.7%, to just 63.4% the lowest reading since the first quarter of 1967.  And the punchline, which should come as no surprise to anyone: with housing no longer affordable to most, the median monthly asking rent just rose to a record $803 across the US.

The 0.18% month-over-month decline in Case Shiller home price index is the biggest since July 2014 which confirms the David Blitzer's view that "over the next two years or so, the rate of home price increases is more likely to slow than to accelerate." His biggest fear is that "first time homebuyers are the weak spot in the market," adding that prices are increasing about twice as fast as inflation or wages. Moreover, other housing measures are less robust - housing starts are only at about 1.2 million units annually, and only about half of total starts are single family homes. Sales of new homes are low compared to sales of existing homes.

"By stepping back and looking at the big picture, we can see that real estate should be correcting and trending down.  The reasons why our grandparents bought their homes have changed.  Government intervention cannot last forever.  It will change from accommodation to devastation, when they finally run out of ideas. As for buying a house, I would consider it more of a luxury as opposed to an investment, and one has to be prepared for the possibility of it being a depreciating asset, especially if one decides to move."

Despite exuberant existing home sales, new home sales crosses back below the 500k Maginot Line to 482k SAAR - the lowest since Nov 2014. Previous data was revised notably lower as June data missed expectations by the most in a year. The West region saw new home sales collapse 17%. Perhaps the slide in single-family home starts means something after all?

Speculative bubbles that burst are often followed by an echo bubble, as many participants continue to believe that the crash was only a temporary setback. But, echo bubbles aren't followed by a third bubble.

While we know now that Greece is irrelevant, and China is irrelevant (fdrom what we are told by talking heads), it appears the commodity carnage of the last few months is relevant for at least one nation. Having already warned about Australia, it appears New Zealand has got nervous:

*NEW ZEALAND CUTS KEY INTEREST RATE TO 3.00% FROM 3.25%, FURTHER EASING LIKELY AT SOME POINT

The Central bank blames softening economic outlook driven by commodity price pressures. Kiwi interestingly popped on the news to 0.66 before fading back a little, despite RBNZ noting a further NZD drop is necessary.

This seemingly inexhaustible credit line is now drying up, with severely negative consequences for oil producers with debt that's coming due. The row of dominoes swaying unsteadily in these stiff winds won't take much to topple.

Two sides separated by the money line.

Due to significant retail participation and the fact that the equity mania in China has served as a distraction for a nation coping with decelerating economic growth and a bursting property bubble, some (and we were among the first) began to suggest that the broader economy and indeed, social stability, may be at risk in China if stocks continued to fall. The extent to which this suggestion represented a real concern (as opposed to the ravings of a tin foil hat fringe blog) was underscored by the extraordinary measures China adopted in a desperate attempt to stop the bleeding and, later by several sellside strategists who began to warn about possible spillovers into the real economy. Now, with Beijing still struggling to restore the stock bubble, the first signs of knock-on effects are beginning to emerge.

A conventional housing recovery in the US is now dead: the builders have spoken and what the next generation wants is to rent, not to buiy.

After weeks of overnight turbulence following every twist and turn in the Greek drama, this morning has seen a scarcity of mostly gap up (or NYSE-breakding "down") moves, and S&P500 futures are unchanged as of this moment however the Nasdaq is looking set for another record high at the open after last night's better than expected GOOG results which sent the stop higher by 11% of over $40 billion in market cap. We expect this not to last very long as the traditional no volume, USDJPY-levitation driven buying of ES will surely resume once US algos wake up and launch the self-trading spoof programs. More importantly: a red close on Friday is not exactly permitted by the central planners.

And so the 2015 season of the Greek drama is coming to a close following last night's vote in Greek parliament to vote the country into even more austerity than was the case before Syriza was voted into power with promises of removing all austerity, even with Europe - which formally admits Greece is unsustainable in its current debt configuration - now terminally split on how to proceed, with Germany's finmin still calling for a "temporary Grexit", the IMF demanding massive debt haircuts, while the rest of Europe (and not so happy if one is Finnish or Dutch) just happy to kick the can for the third time.

The problem with these policy extremes is that they are so painfully visibly acts of central-planning desperation. If things are as positive as we're told, then why are central planners forced to impose such absurdly extreme policies to keep the status quo from imploding? If these policies worked, why are interest rates still pegged to zero after six years of "growth" and the inflation of monumental asset bubbles? If these policies don't work (and they obviously don't, otherwise the authorities could have normalized interest rates and ceased quantitative easing, stock purchases, plunge protection schemes, etc. many years ago) and central planners keep doing more of what has failed, then the only possible conclusions are...