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.
By Lee Adler, of The Wall Street Examiner: By now it’s clear to everybody, even the Fed, that QE does absolutely nothing to stimulate economic growth while fomenting bubbles in housing and stock prices. The Fed will disingenuously use steady job growth as an excuse to begin cutting back on QE soon. But its real reason lies elsewhere.
Wall Street engineering is back in the housing market. Its newest product is one heck of a contraption, a synthetic structured security of the type that helped blow up the financial system back in 2008. It’s like those triple-A rated mortgage-backed securities that became toxic waste in your “money-market-equivalent” bond fund – only worse.
The asset bubbles the Fed’s money-printing and bond-buying binge has created are spectacular, the risk-taking on Wall Street with other people’s money a sight to behold. Big winners were mortgage Real Estate Investment Trusts – and those who got fat on extracting fees. But now the pendulum is swinging back, and the bloodletting has started.
The good old days are back. Those days when money grew on trees: home prices jumped 10.9% year over year, based on data through March 2013. The usual suspects: Phoenix soared 22.5%, San Francisco 22.2%, Las Vegas 20.6%. You can’t lose money in real estate. I’m already hearing it again.
Unlike Detroit, which will run out of cash next month, Japan prints its own money, so bankruptcy in the Detroit sense is not in the cards. But they do have two things in common: depopulation and a ballooning stock of abandoned houses. For Japan, it’s an issue that even the most prodigious money-printing binge cannot resolve.
We have seen it for several years: foreclosure sales have become the hunting grounds for investors with two goals: hanging on to these homes until the Fed’s flood of money drives up their value; and renting them out. Thousands of smaller investors have piled into the game. And so have the giants. But now the second half of the equation is collapsing.
I have written about the housing quagmire from different angles, and there hasn’t been a heck of a lot of good news. However, there have been spurts in home prices propagated by the media with enormous hoopla that later turned out to have been sucker rallies, with prices hitting new multi-year lows after each one. And now there is another wave of media hoopla about housing, but once again, something is off key.
Certain central bankers are coming out of the closet admitting that their favorite shenanigans—ultralow interest rates and printing money with utter abandon—can’t solve the very problems they were designed to solve, which has been obvious for a long time. What they’re not yet admitting massively, though some are starting to hand out hints, is just how much havoc these policies are wreaking.