Death of the Great Recovery Part 3: Housing Collapse 2.0 Has Begun

The following article by David Haggith was published on The Great Recession Blog:

 

Signs of a housing collapse in 2018

It’s simple math — an equal and opposite reaction. After a long spell of QE took mortgage interest down to the lowest it has ever been, a long spell of QT (quantitative tightening) is going to take it back up again. That’s why I forecasted another housing collapse with confidence last year:

Rising mortgage rates will certainly cause housing sales to fall. Prices will follow for those houses that have to sell because, as mortgage interest rises, people won’t qualify for as large a mortgage as they do now. It’s all part of the developing Epocalypse in which multiple industries collapse into the final depths of the Great Recession as the fake recovery fades out of existence like a mirage.

 

The big difference between 2010 and now, and between 2008 and now, is that home prices have skyrocketed since then in many markets – by over 50% in some markets…. In other markets, increases have been in the 25% to 40% range. This worked because mortgage rates zigzagged lower over those years, thus keeping mortgage payments on these higher priced homes within reach for enough people. But that ride is ending. (Zero Hedge)

 

I gave this part of my 2018 economic predictions more time to play out than I did for Carmageddon or the Retail Apocalypse or a 2018 stock market crash because mortgage rates are not as volatile as things like credit-card rates, nor do housing prices quickly reverse. People can hold out for a year or more or choose not to sell at all before they are inclined to drop the price of their most treasured asset.

Nevertheless, mortgage interest is rising at the fastest rate seen in nearly half a century in what has been the most prolonged increase in 46 years. Rates are already at 4.66% on a 30-year mortgage and briefly touched a seven-year high, even though the Fed’s unwind is only at half speed and has only been happening (at an even lower speed) for a little over half a year.

 

Mortgage rates spiked in a big way today, bringing some lenders to the highest levels in nearly 7 years (you’d need to go back to July 2011 to see worse)…. Today did cover quite a bit more distance than other recent “bad days.” (Zero Hedge)

 

As interest rises, sales and prices will go into decline; but right now we still have a lot of rebuilding to do from the hurricanes and wildfires; rates are just beginning their rise; and we are entering the peak building and buying season. That means I expect a summer housing boom this year — a last hurrah —  as buyers try to pour into the market before rates rise any more … as soon as school is out … and as rebuilding from last year’s hurricanes and fire storms gets under full swing.

That’s in keeping with what I said last year when I had predicted a housing decline for that summer. Housing did start to show notable problems, but the hurricanes and wildfires changed all of that to where I revised my date (prior to any known change in reported housing statistics) to say the housing decline that had begun would be delayed until the fall of 2018 due to the flurry of buying and rebuilding that the storms would necessitate.

I predicted a quick rebound to housing last fall when any of the storm afflicted who could move quickly would suck up available inventory or move to other regions and find new jobs. Then I said there would be a delayed boost for rest who chose, instead, to build new homes or rebuild damaged ones. That boost would be delayed until spring and summer of this year because clean up and planning and, in many cases, infrastructure repairs have to happen before new construction can begin, and we were moving into winter which inhibits construction.

After this coming fall, however, it’s downhill all the way for housing. The only caveat I see for that prediction is the same one that saved housing when it started going down last year: the national weather service says we are on track for another year of major storms (both hurricanes and fire storms all over again … if they know what they are talking about.) If such difficult-to-predict events materialize, they will again force a lot of people to buy new homes or rebuild old ones. That, however, is not a rinse-and-repeat cycle that can restore the economy.

While the housing market would get another temporary boost from the flurry of rebuilding, it is a boost that ultimately makes the economy weaker. The broken-window theory for rebuilding and economy doesn’t work. Things really work like this: If storms hit in the same areas that were hit a year or two before, then already bedraggled people are less resilient toward starting the rebuild all over again. As a result, those areas go into permanent decline because people simply give up and move out.

In other words, the temporary boost that we saw due to storms last year came at a cost to resiliency this year — not just the resiliency of people but the resiliency of banks toward making loans in those regions and of insurance companies to keep insuring in those regions. We’re a very resilient nation, so we can endure a lot of blows; but that doesn’t mean they make us stronger or that we are invincible. Even if storms hit in different areas, resiliency of insurance companies to keep absorbing heavy losses has declined some due to last year and would decline more this year. Insurance rates would have to rise for companies to remain solvent. Obviously, these events also reduce future resiliency by increasing many people’s debt to a level of strain they can barely take.

Storms can create a stimulus boost, but they do not turn around a secular decline. They do not change the fact that rising interest rates overall are inevitably destructive to the housing market.

 

How is a housing collapse evident this year in spite of storm recovery?

 

I can still offer support for my claim that housing is in the process of collapsing, even though we are getting a boost from reconstruction and from people quickly absorbing what inventory was available in the aftermath of the storm. The decline can be felt in the softening of statistics that developed earlier this year as the Federal Reserve’s Great Unwind from QE picked up steam.

Look at some of the headlines and stories in housing as the year developed:

 

Housing collapse facts from January:

 

New Home Sales Tumble 9.3 Percent Amid Nasty Winter Weather It was the biggest drop since August 2016. November sales were also revised lower — to 689,000 from an originally reported 733,000, but were still the strongest since October 2007. Nevertheless, the drop was steeper than economists had forecast. Weather was blamed. Oddly, the decline was led by a 10 percent drop in the Midwest and a 9.8 percent drop in the South — the very areas where storm stimulus should have been the strongest.

Mortgage Applications, Refinancing Drop as Interest Rates Rise Rising borrowing costs were blamed for the decline in refis (down 2.9%) as well as in mortgage applications for new purchases (down 2.6%). Average interest rates on 30-year mortgages rose to their highest level since March 2017.

 

Housing collapse from February:

 

Weekly Mortgage Applications Plunge 6 Percent as Rates Spike Applications for loans to buy a home decreased another 6 percent in just one week. Average interest rates on 30-year mortgages rose to their highest level since January 2014, and the 15-year hit its highest level since April 2011.

Sales of Existing Homes Fall 3.2 Percent, Most in 3½ Years A persistent shortage of houses pushed up prices and kept first-time buyers out of the market. This was the second straight monthly decline and reflected decreases in all four real-estate regions of the country. Economists for reasons unbeknownst to intelligent people had actually expected existing home sales to improve, instead they took their biggest year-on-year drop since August 2014. Again, lack of supply was blamed for the decline. (Has it occurred to any economists that people may not be putting their homes on the market because they know their next mortgage will require significantly higher interest? That would be one more way that rising interest will clobber the housing market. ) Due to lack of supply, housing prices rose even in the face of declining sales.

New Home Sales Drop 7.8 Percent to 5-Month Low in January New home sales also plummeted for a second consecutive month, particularly in the south where weather is less of a factor and where last year’s storms should have boosted sales. This raised “concerns the housing market is losing momentum.” Economists started to catch on: “Given the softening in the housing data over the past few months as well as the recent increase in mortgage rates as well as tax changes that reduce the attractiveness of mortgage financing, we think it is very likely that real residential investment will decline in the first quarter.” Leave it to modern economists to not see a housing collapse coming until it actually hits.

New Home Sales (Predictably) Fall Out Of The Boom, Too “What has happened is little more than the anticipated (for anyone not obviously biased by the boom narrative) drawdown in transactions following the aftermath of the storm aftermath…. Hurricanes Harvey and Irma produced undeniably large disruptions…. Prior to them in August and September, the real estate market was unusually weak. Leading up to August, there was a noticeable deceleration and even contraction.” (Just as predicted here for last year.)

 

Housing collapse facts from March:

 

Housing Starts Plunge 7 Percent Construction starts of multi-family housing declined 26% (MonM), while permits for future multi-family home construction decreased 5.7 percent. Permits for single-family homes decreased by 0.6%. A survey showed builders were becoming less upbeat about sales and buyer traffic over the next six months.

Existing Home Sales Jump 3 Percent Despite Leaner Inventory Sales of existing homes, however, rebounded, particularly in the south and west where hurricanes and firestorms did their damage. Sales soared 6.6 percent in the South, where the bulk of sales activity occurred, and vaulted 11.4 percent in the West.

Low Supply of Homes Continue to Hinder Housing Market  “So, is the housing market improving, weakening or stagnant. The answer seems to be yes. Purchases of previously owned houses rose in February, but the level remains somewhat disappointing. Over the year, sales were up minimally and were pretty much at the same pace we averaged during 2017. In other words, it is going largely nowhere. The big problem is the low level of homes on the market.”

Wells Just Reported The Worst Mortgage Number Since The Financial Crisis Mortgage lending — the bread and butter of banking — declined again. Wells Fargo, America’s largest mortgage lender, reported its second quarter of serious declines in its mortgage business. Here is a map of their mortgage activity since the last housing collapse:

 

 

Housing collapse 2.0 as reflected in Well Fargo data.

 

 

You can see the post-recession pick-up and then the decline to the present. Of course, with interest rates rising due to Fed tightening, a drop in mortgage applications at the epitome of mortgage bankers was completely predictable. (So, why didn’t everyone predict it?) When prices go up, sales drop — basic economics that most of the world’s economists have lost sight of entirely.

See a pattern here:

 

 

Housing collapse seen in pending home sales.

Pending home sales provide clear evidence of a developing housing collapse

 

 

Green bars have slowly become non-existent, and red bars now rule.

 

Housing collapse facts from April:

 

Mortgage Applications Jump 4.9 Percent Amid Spring Buying Season Refi apps finally rose, too, and the average time (nationwide) it takes a median-priced home to sell dropped to a low of 81 days — a level not seen since just before the last housing collapse.

 

Housing collapse is imminent, but DO hold your breath

 

In short, things are building exactly on the revised schedule I laid out for my predictions last summer right after the storms temporarily changed everything. (My predictions, being not based on a crystal ball or divine inspiration, are based on how economic trends are coming together; but I don’t attempt to predict extreme weather. I did, however, predict immediately how the weather — extreme as it was — would impact the economic realities I had been forecasting.)

Housing sales and construction generally picked up this spring, as I expected, and I expect sales and construction to soar this summer because buyers will likely flood the market, knowing that they’ll never see mortgage interest rates this low again … unless there is another housing market collapse and a drop back into the Great Recession. People who don’t read here, however, might not know that another housing collapse is building, so they may likely feel desperate to take their last chance at a respectable mortgage rate and desperate to pile into rising prices just like they were at the turn to the last housing collapse. (Whereas, I am inclined to do the opposite — sell now, and hold for prices to come down and then buy a home mortgage free; but that’s just me.)

 

Buying a home “has become an exercise in speed and agility,” Zillow Senior Economist Aaron Terrazas writes in the report. “This is shaping up to be another competitive home-shopping season for buyers, who may have to linger on the market until they find the right home but then sprint across the finish line once they do.” (NewsMax)

 

There are many signs of general decline in the housing market, but a false salvation came in the fall and again in the spring and summer due to rebuilding from hurricanes and firestorms, relocating due to storms, and now a last-minute rush to get in on the sunset of low mortgage rates.

That all will expire this fall when building slows due to weather, and sales of existing homes slow because people don’t tend to move after school starts. The Trump tax reform is also designed to deliver a major blow to the housing industry by reducing write-offs for mortgage interest as well as for state property taxes.

By then, low mortgage interest rates will be disappearing in the rearview mirror, and other economic problems in stocks, retail store closures, and auto sales, along with delinquent auto loans, will have begun to mount some serious pressure on the overall economy, making it harder for many to maintain the loans they already have.  Those with adjustable-rate (I call them time-bomb) mortgages will be destroyed because falling house prices mean they will be underwater when forced to sell because they cannot afford their ever-expanding payments. The primary driving force, however, is the Federal Reserve’s Great Unwind.

Then, of course, their is the Canadian boom and bust, and London is languishing. That is to say, the turn has already begun in both of those markets. So, this time is different. It’ll start out globally, rather than just end that way.

Meanwhile, the media is glibly reporting everything the banksters say, which is that banks are in a much more stable position this time. So, let’s analyze that:

 

Repeating all the foolishness that took place just before the last housing collapse

 

Here’s another repeat from the Great Recession: When housing needed a boost last time around in an attempt to sustain its ridiculous peak, Fannie Mae and Freddie Mac started dropping downpayment requirements to make for a little more ease of entry. That wasn’t enough, so they and the Federal Reserve also trimmed back income restrictions and softened other loan terms in order to try to avoid a housing collapse.

And here we are again today:

 

Freddie Mac Launches “3% Down” Mortgage With No Income Restrictions This time there are no geographic restrictions and NO income restrictions.

 

Can anyone say, “Hallelujah!” Just when you thought they would never roll out those zany loose credit standards that assured that the last housing collapse would also take out the banks, they do an even bigger job of it. That means it is almost certain banks will fail again this time due (again) to sloppy credit standards.

I mean why do you need income in order to service a loan? Right?

Yet, it gets better, these slack terms are aimed at first-time buyers, so that they can find a way to enter this market that they have been priced out of … just like first-timers were last time. Yeah, the loosest terms go specifically to those who have no track record of having ever made payments on a mortgage. But don’t worry, the banks will be safe because the loans are still secured by the value of the home as collateral in a market of rising prices. You do remember that from last time, right? Real estate prices never go down, right?

As an added safety margin, one of the buyers under this new program must participate in a “homeownership education” class! (That’s gotta warm your cockles.) I hope the class includes a course on “Why Income Matters” so that the penniless will be inspired to get a job in order to service their mortgage.

No wonder Fannie Mae reported that consumer confidence in housing has leaped back up to the highest level it has seen since … well … just before the last crash.

 

We learned nothing … or did we?

 

(The italicized part is said with a sinister tone.) It’s become a constant refrain on this site: “We learned nothing.”  By “we,” I mean the nation as a whole and particularly its banks and its politicians and all of those who report on them in the mainstream media, but certainly not readers who spend time on sites like this that give alternative views that are called “fake news” by the people who create fake news.

Oh, but wait: maybe the banksters did learn something. Quite a lot, in fact. They learned they can make vaults full of money off of dumb-ass loans, and then we’ll bail them all out so they don’t fall on us when those loans collapse. They learned that, during a housing collapse, their banks will rapidly become twice as big as they were when they were merely too big to fail. They learned the megamergers they lust after in their late-night dreams are assured because the Federal Reserve won’t merely allow them to merge; it’ll force them to merge … at fire-sale prices!

The banksters even learned that their bonuses will still be paid (by the government), and their salaries will increase because of their glad-handing ability to obtain government funding — the prerequisite for which is that you crash your bank head-on into an economic collapse that anyone can see coming. They learned they will even be given carte blancheto create practically infinite streams of new money and give it all to themselves alone so they can play in the stock market under the pretense that it will somehow trickle down to the mauling masses

And they learned that no one will ever go to jail, even if they engage in little acts of corruption to take advantage of the overhyped market, such as by rigging interest rates or by convincing their clients to buy the things that they, themselves, are selling as fast as they can. Those, in fact, are the banksters that will be looked up to most for advice by the politicians and the media market gurus on how to save the world. They are the Blankenstein monsters that rule the world.

So, I guess we did learn something after all!

Comments

PT Double.Eagle.Gold Wed, 05/30/2018 - 08:47 Permalink

I don't know if this scam, I mean scheme, is still going but not so long ago, in Australia, if you could not afford the mortgage and you met certain criteria, the gummint "helped" you increase house prices, I mean "helped" you "buy" a house, i.e. you pay what you can afford, the gummint chips in for the shortfall, and ends up owning a percentage of your house which they take when you sell.  So just because people can not afford the mortgage does not mean the prices stop going up.  There are endless bullshit ways the thieves can increase profits for banksters, I mean make houses "affordable".  Unfortunately, simple maths is not enough.  It has not been enough for the last 20 years.  Your land is being stolen from you.

"Stolen":  Too harsh?  The house goes to the highest bidder.  Your competitor did not earn as much money as you.  He is only able to bid higher because the gummint chips in and in the end he will never own the whole house.  Even if you are the highest bidder, the gummint has artificially increased the price you end up paying.  Cut the crap, get to the point, simplest summary:  You land is being STOLEN from you and you are being enslaved in the process.  Just let prices go down to levels people can actually afford.  Can't have that now, can we?

Record low interest rates (means you can afford a higher Principle), low deposit, gummint chips in a bit, first home-buyer grants, Ponzi Borrowing ( as defined by Hyman Minsky ) ... if govt, banksters and the rest want prices to keep going up then they will keep going up.  The maths is a great place to start so you can understand by how much you are being screwed but it in no way predicts any crash.  It just predicts the point at which the next scam has to be unleashed.

In reply to by Double.Eagle.Gold

hotrod PT Wed, 05/30/2018 - 09:02 Permalink

In London they call it Laddering into a home purchase.  You buy the percent of it you can afford, incur all maintenance and other costs and the govt. funds the rest, you just pay them interest for the amount they carry and they control it.  Truly disgusting that now people buy a percent of a home in the hopes that their incomes will afford more of it in the future.  Typical is 60%-40% at the start. 

In reply to by PT

platyops Quantify Thu, 05/31/2018 - 02:22 Permalink

Not so fast there.

How about Illinois.

The state is coming after all homeowners by a 1% tax on top of the already 3.67% home tax.

You see they have pension obligations to pay for and the only way is to tax the homeowner 4.67%. On a $500,000 house will be $23,350 a year on top of whatever mortgage you pay. Or approximately 2 Grand a month for property tax.

Keep Stacking!

In reply to by Quantify

Tarzan platyops Thu, 05/31/2018 - 06:08 Permalink

First, nobody received more hand outs, then the bankers, in the bailout.

If anyone should have been bailed out it should be the people being scammed by the bankers with their creative financing of high risk mortgages, straddling the working poor with housing payments they know they can't pay. 

The problem is, in the end, bankers take non of that risk, because tax payers bail them out each and every time. 

IMO this is the thing that's driving prices, the creative ways banks have devised to divert risk away from the risk takers.

It has gotten so crazy that any home in my area that is listed for less then $200,000 is sold inside of a week. 

The daughter a friend put her modest home up for sale last month in Orange Park Florida.  They listed a 1,700 sq ft home for 180,000, and that afternoon there were cars lining up in front of her home taking pictures.  She sold for $178,000 the very next day, then naively purchased a new overpriced home for $260,000, which I suspect she cannot afford.

The wife and I are very tempted to sell, and wait for the correction, to purchase a water front lot on the cheap.

In reply to by platyops

Knave Dave Tarzan Fri, 06/01/2018 - 18:18 Permalink

My wife and I have decided to do the same. Sell while things are at dizzying heights and downscale to something we can own mortgage free or wait out the collapse and then buy back in. I'd prefer the latter, but we'll see what we can see. In our area, people are back to the practice of bidding up homes higher than their offering price.

In reply to by Tarzan

mophead PT Wed, 05/30/2018 - 12:30 Permalink

100% right. And in the US there are local governments that will pay for home renovations. The catch is, when you sell, you split the profit from the added value. They are one step away from doing what Australia does. There are lot's of gimmicks. EB5 investor visa program is one of them.

Edit: And with that said. The author will return in one year saying, "I didn't foresee them doing this and that, but once they stop, then housing will really crash!"

In reply to by PT

Indo_Expat techpriest Wed, 05/30/2018 - 17:24 Permalink

Beware these "citizenship" programs, there are pitfalls and catches such as time limitations and other required "donations":

https://www.businessinsider.sg/countries-where-you-can-buy-citizenship-or-residency-2017-6/?r=UK&IR=T

Many of these countries have shaky/shady governments that can change overnight, and the incoming government could void or "re-negotiate" all previous visa contracts while there is zero recourse for the expat.

Bottom line: if it looks too good to be true it almost aways is;

Buyer beware and read the fine print;

Have a Plan B and preferably a Plan C;

NEVER relinquish your American citizenship, no matter how justifiably angry you are at the government.

In reply to by techpriest

August PT Wed, 05/30/2018 - 21:51 Permalink

>>>you pay what you can afford, the gummint chips in for the shortfall, and ends up owning a percentage of your house which they take when you sell

FWIW the University of California system used to do this, so junior faculty could be recruited from Flyover Country (i.e. anywhere a million-dollar home might be considered "high-end").

In reply to by PT

Unreliable Narrator rockstone Wed, 05/30/2018 - 13:51 Permalink

And it's a hard asset that depends on other assets around it.  Gold is gold.  Silver is silver.  Your "hard asset" real estate has X level of desirability (read: worth) if it's in a desirable neighborhood and "Y" level of desirability if it's next to a row of single-wide meth farms or the local businesses go tits-up.

For the dense, Y << X.  In other words, the status of being a "hard asset" in no way confers absolute valuation.

And unlike gold or silver, you can't move it to a new location.

In reply to by rockstone

techpriest rockstone Wed, 05/30/2018 - 14:13 Permalink

Its funny, but I was just reading Hoppe's "A Short History of Man," and he mentioned ownership of dogs as being part of what started capitalism. Namely, a dog responds to one master, not "the tribe," and as such you cannot collectively own dogs.

Property tax IMO is on par with the income tax for evil, as both say that something you own, is in fact not yours, which is a justification for theft. If you do property tax at all, it should be in the form of a "second mortgage," where you own the house free and clear after paying off a certain amount or pay for a certain period of time.

In reply to by rockstone

Indo_Expat techpriest Wed, 05/30/2018 - 17:44 Permalink

There is one underutiized weapon that may be deployed against the banks and banksters for mortgage holders with low/no equity: The Quit Claim Deed:

https://www.legalzoom.com/articles/what-is-a-quitclaim-deed

It also absolves the homeowner of all tax liability and payments going forward from the date of filing. The one catch is it must be filed while mortgage payments are current and the home cannot be in foreclosure.

As an added bonus that takes some of the sting out of giving up your home, it really, really pisses them off.

In reply to by techpriest

Synoia Indo_Expat Wed, 05/30/2018 - 21:36 Permalink

Bullshit. The Tax liability still exists, and the County will take the property if taxes are unpaid.

Likewise the mortgage. The Bank can foreclose on the property.

In actual fact filing a quitclaim on a property with a mortgage can trigger an immediate foreclosure, because the owner has breached the covenants on the loan.

Idiot.

In reply to by Indo_Expat

Indo_Expat Synoia Thu, 05/31/2018 - 00:49 Permalink

It is you that is the fucking moron, babbling asswipe.

The IRS tax liability ends immediately when the Quit Claim is filed and is transferred back to the mortgage holder/bank along with the title to the property, as does the property tax liability. If the County/Borough wants to foreclose they can fight it out with the bank you fucking nitwit and it is the County/Borough that certifies and stamps the Quit Claim, shit for brains. The day it is filed and stamped it is over.

There is no foreclosure as the bank now owns the property, what are they going to do, foreclose on themselves? HA HA! What a fucking doofus. The bank is notified of the Quit Claim when it receives the certified notice from the former mortgage holder along with the County/Borough stamped Quit Claim and a check for $1.00 selling the home back to the bank. There is no prior notice and therefore no time to attempt a foreclosure by the bank. It is all legal, binding and irrevocable.

How do I know this? I did it, shit for brains and walked away from the property free and clear, and it is all on file at the Office of the Matanuska County Clerk, Mat-Su Borough, Alaska.

https://www.matsugov.us/publicrecords

The property is:

1351 N. Cache Dr.,

Wasilla, AK

Robert S. Finnegan

So stuff that up your stupid, moronic ass dumb fuck. Next time do at least the basic research before opening your blithering suck and having it crammed up your ass sideways. I never make a claim unless I can back it up with documentation unlike you dipshit, and I bet you are a fucking banker trying to blow bullshit over Quit Claim Deeds as they fuck you and the bank in the ass, and rightfully so.

In reply to by Synoia

PrometeyBezkrilov Double.Eagle.Gold Thu, 05/31/2018 - 00:12 Permalink

Dude, I dont think you have a clue. Let me spell it out for. When the government will attempt real debasement of the currency this things are going to happen. First people will stop accepting this currency for transactions. You should go back to the Soviet Union "collapse" and study what happened. Luckily back then there was an alternative, though illegal at the time, but nonetheless stable-the US dollar. Most people lost their savings due to currency devaluation. That is just historic example. Lets move on to the house price. House price=Available cash+Available credit. In the event of fast currency debasement credit is going to vanish, cash as well. Yes, you can live in your hard asset if the government decides not to extract your hard asset buy hiking the property taxes, otherwise you can kiss your assets good bye. Plus your hard asset requires ongoing maintenance. So if you hold that asset to live in it and you dont have a mortgage, you might be ok. But if you purchased this asset to keep your wealth, I am sorry, but this was the dumbest move.

In reply to by Double.Eagle.Gold

AGuy PrometeyBezkrilov Thu, 05/31/2018 - 00:55 Permalink

"When the government will attempt real debasement of the currency this things are going to happen. First people will stop accepting this currency for transactions. "

It will take a while before people abandon the dollar. Consider that the dollar has lost about 97% of its purchasing power since 1913, but people continue to use the dollar. Currencies in hyper-inflation still are used, just with wheel barrels to move if necessary.

For the most part people don't have any money or savings: They have credit and use credit & debt to purchase any big purchases, homes with Mortgages, Cars with auto loans, even furniture & clothes.

"if you hold that asset to live in it and you dont have a mortgage, you might be ok. But if you purchased this asset to keep your wealth, I am sorry, but this was the dumbest move."

Hard to predict. If the collapse is stopped than you managed to preserve some of your wealth. If you own real assets its better than holding on cash.

In reply to by PrometeyBezkrilov

PrometeyBezkrilov AGuy Thu, 05/31/2018 - 02:30 Permalink

"Hard to predict. If the collapse is stopped...." This phrase means you don't get what is going on. People come up with paper money schemes with one reason only-to transfer wealth. The transfer of wealth happens when the system is crashed. Give it a thought for a few days. Going back to my statement: "When the government will attempt real debasement of the currency this things are going to happen. First people will stop accepting this currency for transactions." You will recognize when it happens, trust me. When your bread doubles up in price in a matter of days and later hours-you are there. I'll see then if you will agree to sell your assets for a wheelbarrow of paper.

In reply to by AGuy

AGuy PrometeyBezkrilov Thu, 05/31/2018 - 10:42 Permalink

"Going back to my statement: "When the government will attempt real debasement of the currency this things are going to happen"

They are not going to force debasement. It will continue to happen over a long period. They do some more QE when the crash happens, but I doubt they will go full out with QE that triggers hyper-inflation. They'll limit QE money to grabbing up unservicable debt, but no QE money will make it to the sheeple. Consider that Japan has been doing QE for 30 years and its still hanging on. The BoJ owns all of Japans treasury debt, and has held interest rates at near zero for more than a decade. If any major industrialize nation that should have hyper-inflated it would be Japan.

My guess is that there will be WW3 before hyper-inflation hits the USA. The USA will use war as a distraction & to secure strategic resources. Every major industrial power is now engage in Military Keynesium: USA, China, Japan, NATO, Russia, etc. Its like the pre WW1 arms race.

In reply to by PrometeyBezkrilov

Honest Sam Wed, 05/30/2018 - 07:54 Permalink

Find for me WTF he is wrong:

Oh, but wait: maybe the banksters did learn something. Quite a lot, in fact. They learned they can make vaults full of money off of dumb-ass loans, and then we’ll bail them all out so they don’t fall on us when those loans collapse. They learned that, during a housing collapse, their banks will rapidly become twice as big as they were when they were merely too big to fail. They learned the megamergers they lust after in their late-night dreams are assured because the Federal Reserve won’t merely allow them to merge; it’ll force them to merge … at fire-sale prices!

The banksters even learned that their bonuses will still be paid (by the government), and their salaries will increase because of their glad-handing ability to obtain government funding — the prerequisite for which is that you crash your bank head-on into an economic collapse that anyone can see coming. They learned they will even be given carte blancheto create practically infinite streams of new money and give it all to themselves alone so they can play in the stock market under the pretense that it will somehow trickle down to the mauling masses

And they learned that no one will ever go to jail, even if they engage in little acts of corruption to take advantage of the overhyped market, such as by rigging interest rates or by convincing their clients to buy the things that they, themselves, are selling as fast as they can. Those, in fact, are the banksters that will be looked up to most for advice by the politicians and the media market gurus on how to save the world. They are the Blankenstein monsters that rule the world."

 

THIS is what Mass Media should be reporting until about a thousand billionaires, and mulitmillionaires are either put in jail of killed.

Okienomics Honest Sam Wed, 05/30/2018 - 08:51 Permalink

"Find for me WTF he is wrong"

He spends quite a bit of time featuring the declining mortgage applications numbers. However, if you bifurcate mortgage applications into the two categories of purchases and refinance, you'll see two different trends.  Refinancing activity has declined, while mortgages for home purchases remains on a general up-trend as of the report today (May 30).  See http://www.calculatedriskblog.com/2018/05/mba-mortgage-applications-dec…

Refinancing activity SHOULD drop as we reverse from ultra-low interest rates, because everyone who could refinance has done so.  There are no new opportunities to refinance into a lower rate.  Does that imply housing is collapsing?  Not even close.  You would have to see mortgage applications for purchases drop, and that hasn't happened.  

Turning to prices, they're not declining, but in fact, the up-trend continues.  If housing were "about to collapse" you would see prices declining.  But let's look at the report from yesterday.  See http://www.calculatedriskblog.com/2018/05/real-house-prices-and-price-t….  Not only are housing prices still climbing, but despite being nominally higher than just before the last bubble pop, real prices (adjusted for inflation) are in fact lower than the prior bubble pop.

If we are headed for a housing price collapse, it would seem we have a ways to go before it happens.  Bubbles tend to pop when everyone is "getting in the action."  Despite climbing prices, I'm not seeing a feeding frenzy of spec buying out there.  

 

In reply to by Honest Sam

AGuy ClickNLook Thu, 05/31/2018 - 01:00 Permalink

In my opinion we are in a credit boom, when its easy to get credit. People are borrowing more fueling economic activity. At some point we'll hit another credit wall when people are unable to increase there debt loan and thats when the crash begins. Its possible that it will crash this fall, but never under estimate the amount of financial gimmicks the gov't and lenders can use to delay the crisis. Perhaps it won't happen until 2020.

In reply to by ClickNLook

Knave Dave Unreliable Narrator Sun, 06/03/2018 - 12:43 Permalink

That is exactly right, and Okienomics gets in the way of his/her own argument:

 

"Not only are housing prices still climbing, but despite being nominally higher than just before the last bubble pop, real prices (adjusted for inflation) are in fact lower than the prior bubble pop.

"If we are headed for a housing price collapse, it would seem we have a ways to go before it happens.  Bubbles tend to pop when everyone is "getting in the action."  Despite climbing prices, I'm not seeing a feeding frenzy of spec buying out there."

 

I agree we have a ways to go. That is exactly why this article says that we won't see the collapse begin until sometime around the end of the year. I'd say we have, at least, 5 months before we start to see prices collapse, and that, as you say, will be the beginning of the actual collapse, not a sign that it is going to begin six months later.

Moreover, Okie says "bubbles pop when everyone is getting in on the action." That is also just another way of saying what I said in the article above. This summer everyone will be jumping in in a last hurrah. Prices are not merely "still climbing." They are climbing faster. So, a feeding frenzy is already beginning. People on the west coast are now bidding prices up, and homes are now selling within days of listing. That means we are fully back in the days when it is a seller's market (which is why I've put my own home on the market -- to sell high this summer, sit things out and buy low in a couple of years). I expect this summer to become a feeding frenzy at the level Okie is looking for as people realize the days of relatively low interest are fading in the rearview mirror. (The more complete article on my own site points more of this out, as I expanded the article after posting it here.)

The article is here to point all of this out to people so they can understand what this summer means as that happens. It is NOT sign the market has been saved. It is a sign the market is melting up. Most people will likely fall into the same trap Okie is falling into, which is the same trap I couldn't get people to avoid last time around when I pointed it out. It is just when things are looking like the housing market is on steroids that the end is near. This summer housing will be flying high!

As for real prices adjusted for inflation being somewhat lower than the last bubble prices, bear in mind that real WAGES adjusted for inflation are lower: https://www.advisorperspectives.com/dshort/updates/2015/09/23/median-ho…

It is not just about where the price of a home is compared to where it was in 2007, but where the price of a home is compared to what people could afford in 2007 versus compared to what they can afford now. The median price is now more beyond affordability than prices were in 2007. So, the collapse of the housing market as interest rates rise is assured.

Okie intentionally avoids much of what I said, such as:

 

"Housing collapse is imminent, but DO hold your breath"

 

I did not say it was now happening, but I probably wrote that line incorrectly. What I meant was that you will be holding your breath for a long time if you're going to hold it! Collapse is imminent in the sense that many factors have been showing up for almost a year, but, if you are waiting for the collapse to begin take a huge breath because it is still months away. We still have to get the feeding frenzy in. That is why I stated clearly that the actual collapse will NOT become evident until AFTER this fall:

 

"Right now we still have a lot of rebuilding to do from the hurricanes and wildfires; rates are just beginning their rise; and we are entering the peak building and buying season. That means I expect a summer housing BOOM this year — a last hurrah —  as buyers try to pour into the market before rates rise any more … as soon as school is out … and as rebuilding from last year’s hurricanes and fire storms gets under full swing.... After this coming fall, however, it’s downhill all the way for housing."

 

I say it all before the collapse so that it has credibility when the collapse begins and so that people know how to interpret the feeding frenzy that is just getting started.

 

--Knave Dave

In reply to by Unreliable Narrator

spastic_colon Wed, 05/30/2018 - 08:46 Permalink

the bond market was swiftly adjusted as the bankers and congress realize that a mere 3.0% 10yr can crash the housing market......at this rate in 20 years or less it will only take a 1.0% 10yr to do the same.

roddy6667 naro Wed, 05/30/2018 - 13:43 Permalink

In CT, we had a collapse that started in 1988. Homes dropped 50% and took 10 years to recover to 1988 levels. Then it happened again around 2008. It recovered and prices are at nosebleed levels. Another crash is due any second. Real estate is a roller coaster. You have to get in at the bottom and bail out before the top. People move around too much and their personal situation changes too often to stay in the same house for decades.

In reply to by naro

Son of Loki Quantify Wed, 05/30/2018 - 18:20 Permalink

Prices where I live are actually going down and there's plenty of used houses on the market also. Even lakeside houses are still sitting on the market whereas a year or two ago they sold within a week.

I guess SF, NYC and Atlanta and a handful of others are special. Most prices in flyover country are not rising.

In reply to by Quantify

roddy6667 Quantify Thu, 05/31/2018 - 23:12 Permalink

They dropped that much. I was a Realtor and an appraiser. People who could afford to sit it out did so. Others just walked. I went through a divorce which forced a foreclosure. I sold a lot of homes to insurance company executives whose career depends on moving to another state to take promotions. If they walked away from the home, it screwed their credit. This was not as important back then, but it prevented a lot of people from moving. A company that deals in insurance, money, and finance does not want somebody who can't manage his own affairs. 

In reply to by Quantify

Knave Dave naro Sun, 06/03/2018 - 13:15 Permalink

That, or be smart enough to increase your wealth by selling high now, sitting through it in a rental, and buying low in a couple of years. We have not had many housing collapses. Have you already forgotten how we went so many decades without a nationwide housing collapse that the mantra up to 2007 was that real estate values always rise and that banks said they didn't need any downpayment because every house would be worth 10% by the next year anyway? How short memories are.

Locally, of course, there are numerous housing collapse, but that is a different kettle of fish: the local gold mine runs dry; the town becomes a ghost town, and you can't sell your home for a dollar. The auto plant shuts down, and housing prices in Detroit collapse. But I am speaking in this article of a national collapse like the one we saw in 2007-2009 -- like when the stock market falls for the whole nation and takes most industries down with it compared to when a single stock falls because a single company goes under.

In reply to by naro

Silver Savior Wed, 05/30/2018 - 10:11 Permalink

I have been wanting housing to collapse the most. The whole industry should go the way of Detroit at it's lows. A tube of silver eagles is about all an older house should be worth.

 

Consuelo Wed, 05/30/2018 - 10:30 Permalink

I marvel at the confidence of those so sure rates are going to keep rising...

We haven't even seen a 'blip' - in either sustained downward market (S&P) trajectory, nor rate increases that even begin to approach 'normal', and nervousness is already brewing at the Fed.

In essence, this entire scenario boils down to one either believing the Fed is going to let this sucker implode - or, do what they have over a century in the historical record of doing: Further debasing the currency to float a debt & consumption-based model - which in essence is a fait accompli, because there is no economy without the continued expansion of debt, and by association, a permanent low interest rate environment.