Prices for housing have jumped and rents have jumped too, yet the 38.7 million renters, 34% of all households, watched with dismay as their real wages declined. They’ve got a problem with the “wealth effect” that Bernanke held up as pretext for printing money.
Number one is Palo Alto, epicenter of Silicon Valley craziness, where home prices are now 40% higher than they were at their prior bubble peak. What are we calling this phenomenon? Bubble? Nope. “Housing recovery.” But the middle class has hit a wall.
Now part three, after soaring home prices and mortgage rates. It was drowned out by the hullaballoo over the Fed’s taper announcement. It came from Fannie Mae and Freddie Mac. It will drive up mortgage payments even more.
Property developers are aware that land value increases massively as soon as mineral deposits are found in the area.
You can’t get away from it. The media fawn over it. Rational neighbors drool unexpectedly. Ads flood the airwaves. “Learn our simple three-step system on how to flip homes,” the announcer says. Everyone knows: untold riches are waiting for you. “Right here in the Bay Area,” he says. It’s hot, so hot that people will get burned. And banks will get hit (again).
Oaktree Capital and Carrington Mortgage are trying to dump a portfolio of 500 single-family homes they’d bought out of foreclosure. They’re trying to get the heck out of the once hot buy-to-rent trade. Blackstone, which gobbled up 32,000 of these homes, is trying to get its money out. They all are. That trade is turning sour. Trouble in the housing market!
When the Fed shied away from tapering its $85 billion a month in asset purchases, while simultaneously downgrading the economy for the third time this year, it gave the impression of being mired in fear. It has many reasons to be afraid. But one in particular.
Dizzying home-price increases fused with pandemic hype and trillions from the Fed into a self-propagating force. It’s now accepted that housing will recover all the way to where it was in 2006, a sign the Fed has done its job, that it cured the ill that has dogged this economy for so long. Prices of 2006 are no longer “the peak of the housing bubble” but a goal.
By Lee Adler, The Wall Street Examiner: There’s been a lot of talk over the past year about the housing “recovery.” But the fact of the matter is that in terms of new single-family homes, there’s no genuine recovery, but there’s certainly a bubble in prices.
Home prices have jumped around the country, in some cities over 20% on an annual basis. “Recovery of the housing market,” is what this phenomenon is called. Everyone from President Obama on down has taken credit for it, particularly the Fed, whose handiwork this is. But there is a very ugly fly in this illusory ointment.