Economists Who Push Inflation Stunned That Rising Home Prices Put Buyers Deeper Into Debt

Once again, when the government intervenes – this time in housing – the left hand is starting a fire that the right hand is trying to put out. Rising prices for homes are once again pricing out prime borrowers and nobody can "figure out" why this is happening.

It is news like this article reported this morning by the Wall Street Journal that continues to perpetuate the hilarious notion of Keynesian economics as giving a job to one man digging a hole and another job to another man filling it, simply so that they both have jobs.

There is nothing funnier (or sadder) than "economists" struggling to understand how housing prices got so high and why people are taking on more debt in order to purchase them. However, that is the great mystery that the Wall Street Journal reported on Tuesday morning, making note of the fact that people are “stretching“ in order to purchase homes. What's the solution to this problem? How about just easing lending standards again? After all, what could go wrong?

Apparently blind to the obvious – that forced inflation could amazingly make things more expensive relative to income – "economists" have hilariously blamed this price/debt delta on lack of supply. Of course, no one has mentioned the credit worthiness of borrowers getting worse or the fact that homes prices are being manipulated in order to offer home ownership to people who otherwise may not be in the market.

More Americans are stretching to buy homes, the latest sign that rising prices are making homeownership more difficult for a broad swath of potential buyers.

Roughly one in five conventional mortgage loans made this winter went to borrowers spending more than 45% of their monthly incomes on their mortgage payment and other debts, the highest proportion since the housing crisis, according to new data from mortgage-data tracker CoreLogic Inc. That was almost triple the proportion of such loans made in 2016 and the first half of 2017, CoreLogic said.

Economists said rising debt levels are a symptom of a market in which home prices are rising sharply in relation to incomes, driven in part by a historic lack of supply that is forcing prices higher.

The "lack of supply" argument is just wonderful - a bunch of "economists" finding a basic free market capitalism solution to a problem that has nothing to do with free market capitalism. Perhaps "economists" can also argue that building more, despite the lack of prime borrower demand, will also have the added benefit of puffing up GDP. From there, it's only a couple more steps down the primrose path that leads to China's ghost cities.

And of course, people are worried that we could have a "weak selling season" upcoming. In a free market economy, weakness is necessary and normal. In Keynesian theory, it's the devil incarnate. The Wall Street Journal continued:

Real-estate agents worry that buyers’ weariness from being priced out of the market could make this one of the weakest spring selling seasons in recent years.

Consumers are growing more optimistic about the economy and their personal financial prospects but less hopeful that now is the right time to buy a home, according to results of a survey released in late March by the National Association of Realtors.

At the same time, the average rate for a 30-year, fixed-rate mortgage has risen to 4.40% as of last week from 3.95% at the beginning of the year, according to Freddie Macputting still more pressure on affordability.

These factors “are working against affordability and that’s why you get the pressure to ease credit standards,” said Doug Duncan, chief economist at Fannie Mae .He said that pressure has to be balanced against the potential toll if underqualified buyers eventually default on their mortgages.

CoreLogic studied home-purchase loans that generally meet standards set by Fannie Mae and Freddie Mac, the federally sponsored providers of 30-year mortgage financing.

The amount of these loans packaged and sold by Fannie and Freddie increased 73% in the second half of 2017, compared with the first half of the year, according to Inside Mortgage Finance, an industry research group. In that same period, overall new mortgages rose 15%.

As if the signs weren’t clear enough that manipulating the economy and manipulating the housing market has a detrimental effect, the article continued that Fannie Mae and Freddie Mac are "experimenting with how to make homeownership more affordable, including backing loans made by lenders who agree to help pay down a buyer’s student debt". Sure, solve one government subsidized shit show (student loan debt) with another one!

Is it any wonder that the entire supply and demand environment for housing has been thrown completely out of order?  On one hand, the government wants to make housing affordable so that everybody can have it, which closely resembles socialism. On the other hand, they are targeting prices to rise 2% every single year and claim that this is normal and healthy economic policy that we should all be buying into and applauding. The left hand doesn't know what the right hand is doing!

We were on this case back in October 2017 when we wrote an article pointing out that home prices had again eclipsed their highest point prior to the financial crisis. We knew this was coming. We at the time that the ratio of the trailing twelve month averages of median new home sale prices to median household income in the U.S. had risen to an all time high of 5.454, which following revisions in the data for new home sale prices, was recorded in July 2017. The initial value for September 2017 is 5.437.

In other words, the median new home in the US has never been more unaffordable in terms of current income.

Here we are 6 months later and "economists" are just figuring this out. What's wrong with this picture?

What’s really happening is clear. Instead of letting the free market determine the pricing and availability of housing, the government has continued to try and manipulate the market in order to give everyone a house. This is simply going to lead to the same type of behavior that led Fannie Mae and Freddie Mac to fail during the housing crisis.

If we are going to have free market capitalism, the reality of the situation is that not everybody is going to own a house.

Furthermore, while there are many benefits to owning a house, there are also many reasons why people rent. Peter Schiff, for instance, often makes the case that renting is generally worth it because you’re saving yourself on upkeep and it allows you to be flexible with where you live and when you have the opportunity to move. He himself rents property for these reasons, which he often notes in his podcast. Sure, there are some benefits of homeownership, namely that a homeowner is supposed to be building equity in something, but looking again at the situation we are in today, is it worth investing in the equity of a home that might see its price crash significantly again, similar to the way housing prices did in 2008?

The government is creating both the problem and the solution here and instead of trying to continually fix the housing market, they should just keep their nose out of it and allow the free market to determine who should own a house and at what price. Call us crazy, but we don't think that's going to happen.

Comments

navy62802 Tue, 04/10/2018 - 20:53 Permalink

Feigning ignorance does not make one actually ignorant. They knew exactly the endgame they were creating when they advocated these disastrous policies.

1936ryer navy62802 Tue, 04/10/2018 - 23:54 Permalink

You got that right.  I was talking to my accountant on how the govt lures its citizens into debt by allowing people to write off the interest on their mortgages, it this ridiculous --- our govt incentivizes people to go into debt and then it complains that nobody is saving for retirement.  Face it - our govt has been hijacked by the banks and they want everyone to be debt slaves.

In reply to by navy62802

sodbuster Tue, 04/10/2018 - 20:56 Permalink

The "government" is the ultimate shit show!!! It's like the Super Bowl shit show!! The World Series of all shit shows. And yet the ignorant sheeple continue to expect government to solve what they consider "problems".

helloimjohnnycat booboo Tue, 04/10/2018 - 22:03 Permalink

Like I keep telling you guys, joos are inside-out niggers / reverse niggers.

Po' ol jungle hip-hopper really can't know better than he does.  He's working to the best of his ability.

Bearded clams like Bernanke ? ....ah come on now, we know he's a genius.

No kidding, I'm certain the joo-bait kike is smart in many areas.

Even a puppy learns how to handle paper.

Unfortunately, making the economy better for Americans was never Bennie's game.

Another thing, in a real-world shop, Bennie might lose a chunk of well-trimmed beard.

I can't stand the prick, but never take pleasure in seeing machinery eat flesh.

 

 

In reply to by booboo

A Sentinel yellowsub Wed, 04/11/2018 - 00:22 Permalink

Cities and counties fund wasteful spending with bond issues. Those coupons have to be paid. Setting foot on this path leads the typical incompetent boobs on councils across the country to end up having to hike property taxes on a regular schedule. 

The results are shocking and painful as retirees are forced to spend their final moments moving, young and less stable families also leave.

and the root? Teachers’ unions and politicians’ craven fear of their dept of ed masters.

In reply to by yellowsub

3LockBox Tue, 04/10/2018 - 21:01 Permalink

When lenders give out home loans to anyone with a pulse it is no surprise that homes are so ridiculously priced.

However, when the candy runs out people are going to be left with a very painful tummy ache.

Giant Meteor 3LockBox Tue, 04/10/2018 - 21:08 Permalink

"When lenders give out home loans to anyone with a pulse it is no surprise that homes are so ridiculously priced."

I don't believe you understand. Lenders give out home loans and car loans and whatever loans to people without pulses because the system relies on indebtedness to "function." No debt, no system. As the pool of greater fools drys up, the system ceases to function properly until such time as greater fools can be found once again.

If greater fools cannot be found, or the available pool has already been "used up" , they find other ways to continue burning through the debt fiat, and ultimately go to war ..

In reply to by 3LockBox

Dr. Engali Tue, 04/10/2018 - 21:02 Permalink

Meh. Nothing a little deflation can’t fix to consolidate the properties into the rightful owners of the one percent. After all, they are the only people capable of appreciating the value of land ownership. As for the ex “home owners”, the oligarchs will gladly let you occupy their property for a pre determined amount of fiat. Eat your peas debt serfs. 

Yen Cross Tue, 04/10/2018 - 21:05 Permalink

  The ONLY reason PPI has moved higher is because of the softer $usd.

 Mnuchin and his Merry band of Elf "bean counters" have achieved the exact opposite of what their objective was.

  That being, a reduced trade deficit through increased exports.

  Once again,,, welcome to stagflation Bitchez.

  At least I got out of my stale eur/usd long positions. The carry was getting expensive.

  That being said last week I stated the $ was going to move lower s/t, and hopefully some "hints" caught, I'm ready to buy some $usd again. 

  FWIW, I'm completely flat in these directionless low vol casinos. I'll trade the break out.

Vlad the Inhaler Tue, 04/10/2018 - 21:23 Permalink

It's not an accident, it's designed for bankers to profit.  They say the GSEs make housing more affordable, while everyone knows that cheap and easy credit causes things to become more expensive.

Giant Meteor Vlad the Inhaler Tue, 04/10/2018 - 21:46 Permalink

Pre collapse, 2008 there was no noble intentions of "home ownership for all" but rather the calculated planning of debt service, debt servitude for all, whilst said debt serfs held ever shittier jerbs, low wages, and poorer prospects (thus loaning to those with or without a pulse). Perhaps it could be said the plan was a bit too efficient. It worked too well. Debt slavery makes compliant serfs on the corporate debt plantation and keep the wheels greased in the vigorish fee based rentier e con o me - right up until said debt serfs received their walking papers from one, Ms. "Linda Green."

Bad money. I believe Kevin Philips and other's have covered this topic well.

Financialization = Financial Lies Nation .. to keep a relative few well into the life that they've become accustomed to enjoying, not the least of which are cushy .gov jerb employees on the plantation with fully funded retirements and health care.

When things become desperate, they have to lie, and commit greater frauds in the FIRE e con o me = burning it down to the waterline ...

Things are so entirely desperate at this late stage, the criminality is now done in the open, without much stealth, or valiant attempts at better lies and obfuscation.

In reply to by Vlad the Inhaler

jim942 Tue, 04/10/2018 - 21:28 Permalink

It still costs more to build a new house than to buy a used house. New homes are not affordable to the little people so that only leaves used homes. The price difference is still quite large.

Yen Cross jim942 Tue, 04/10/2018 - 21:35 Permalink

  Great comment. Gawd, I was walking down a street where homes hang of cliffs over the ocean, earlier today.

  The new ones are total prefab shit. Never buy an ocean side home, unless you want to hear your neighbor flush his toilet for $5m.

   Ohh yeah, there were at least 15-20 for sale, that were existing. People are cashing out, and taking equity. {if they have any, from all those ZIRP renovations}

  So much for that tax break? Fake money, is just fake money.

In reply to by jim942

snblitz Tue, 04/10/2018 - 21:41 Permalink

In the mid 1980s various state commissions reported that for the foreseeable future California would need a 3% growth rate in housing stock to meet future housing needs.

California went from 30 million to 40 million people and managed a below 1% growth rate in housing.

So demand went up a lot and supply went up a little. 

Now that should lead to _______ prices.

  • A) higher
  • B) lower
  • C) unchanged
  • D) none of the above

 

HRH of Aquitaine 2.0 Yen Cross Tue, 04/10/2018 - 23:35 Permalink

Really? There are a few ways but not politically correct. One involves changing the laws dealing with the mentally ill and making it easier to force them into treatment for extended periods of time (and prior to killing someone or themselves). I don't see that as going anywhere, fast. Psychiatrists have to be willing to say that someone is incapacitated. Good luck getting that done in Kommiefornia. They are willing to let someone live, and die, as less than a stray dog on the street. That is the level of insanity practiced by liberals.

Another solution involves dealing with addicts and alcoholics. How do you do that? I don't know. Confine them? Force them into treatment? Allow them to drink and use while keeping them in something like a barracks with access to toilets, showers, a locker and food? The solutions are hard, now.

Wait until SHTF and times are really tough.

I don't know what you are doing, to fix the issue, but I wish you and your friends, all the best. It isn't going to be easy. Past solutions have been horrific once times got tough. Basically a ditch, a bullet, and a bulldozer. As I always say, I am a realist. Life is harsh. You deal with it or not. Plenty of people are getting by and thinking they can ingore reality. For now.

In reply to by Yen Cross

kne Tue, 04/10/2018 - 21:45 Permalink

Huh, who would've thought having low interest rates for such a long time would cause massive inflation & debt that people shouldn't be accruing in the first place! Time to raise the rates and watch this baby fall...

Aubiekong Tue, 04/10/2018 - 21:45 Permalink

I am still trying to figure out why the $7.50 "family" sized bag of lays potato chips now looks like the "personal" $0.75 bag of potato chips that I remember buying just a few short years ago.  A large Papa Johns Pizza looks a lot like a small pizza from a few years back as well...

thepozz Tue, 04/10/2018 - 21:48 Permalink

Average blue collar worker house in Vancouver BC is now 1.5 million.....no pool no garage just a basic house. Average salary is around 55 thousand......Now tell me that's not house insanity at it's finest........I am not going to blame the" asian invasion" in Vancouver as it's just stupid people that continue to pay these prices. Government created it with cheap loans, now what?? I am hoping it comes crashing down.....Even if it's 50 percent it's still over priced. Something is got to give.