Most Popular
1. Banking Crisis is Stocks Bull Market Buying Opportunity - Nadeem_Walayat
2.The Crypto Signal for the Precious Metals Market - P_Radomski_CFA
3. One Possible Outcome to a New World Order - Raymond_Matison
4.Nvidia Blow Off Top - Flying High like the Phoenix too Close to the Sun - Nadeem_Walayat
5. Apple AAPL Stock Trend and Earnings Analysis - Nadeem_Walayat
6.AI, Stocks, and Gold Stocks – Connected After All - P_Radomski_CFA
7.Stock Market CHEAT SHEET - - Nadeem_Walayat
8.US Debt Ceiling Crisis Smoke and Mirrors Circus - Nadeem_Walayat
9.Silver Price May Explode - Avi_Gilburt
10.More US Banks Could Collapse -- A Lot More- EWI
Last 7 days
Stock Market Volatility (VIX) - 25th Mar 24
Stock Market Investor Sentiment - 25th Mar 24
The Federal Reserve Didn't Do Anything But It Had Plenty to Say - 25th Mar 24
Stock Market Breadth - 24th Mar 24
Stock Market Margin Debt Indicator - 24th Mar 24
It’s Easy to Scream Stocks Bubble! - 24th Mar 24
Stocks: What to Make of All This Insider Selling- 24th Mar 24
Money Supply Continues To Fall, Economy Worsens – Investors Don’t Care - 24th Mar 24
Get an Edge in the Crypto Market with Order Flow - 24th Mar 24
US Presidential Election Cycle and Recessions - 18th Mar 24
US Recession Already Happened in 2022! - 18th Mar 24
AI can now remember everything you say - 18th Mar 24
Bitcoin Crypto Mania 2024 - MicroStrategy MSTR Blow off Top! - 14th Mar 24
Bitcoin Gravy Train Trend Forecast 2024 - 11th Mar 24
Gold and the Long-Term Inflation Cycle - 11th Mar 24
Fed’s Next Intertest Rate Move might not align with popular consensus - 11th Mar 24
Two Reasons The Fed Manipulates Interest Rates - 11th Mar 24
US Dollar Trend 2024 - 9th Mar 2024
The Bond Trade and Interest Rates - 9th Mar 2024
Investors Don’t Believe the Gold Rally, Still Prefer General Stocks - 9th Mar 2024
Paper Gold Vs. Real Gold: It's Important to Know the Difference - 9th Mar 2024
Stocks: What This "Record Extreme" Indicator May Be Signaling - 9th Mar 2024
My 3 Favorite Trade Setups - Elliott Wave Course - 9th Mar 2024
Bitcoin Crypto Bubble Mania! - 4th Mar 2024
US Interest Rates - When WIll the Fed Pivot - 1st Mar 2024
S&P Stock Market Real Earnings Yield - 29th Feb 2024
US Unemployment is a Fake Statistic - 29th Feb 2024
U.S. financial market’s “Weimar phase” impact to your fiat and digital assets - 29th Feb 2024
What a Breakdown in Silver Mining Stocks! What an Opportunity! - 29th Feb 2024
Why AI will Soon become SA - Synthetic Intelligence - The Machine Learning Megatrend - 29th Feb 2024
Keep Calm and Carry on Buying Quantum AI Tech Stocks - 19th Feb 24

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Don’t Celebrate the U.S. Housing Market Recovery Yet

Housing-Market / US Housing Mar 30, 2015 - 05:49 PM GMT

By: Money_Morning

Housing-Market

Shah Gilani writes: When I moved to Sarasota, Fla., in 1999, I was invited by a prominent local to an “un-wedding wedding” to make new friends in town. I accepted the invitation and, not wanting to display my ignorance, avoided asking the burning question: “What’s an un-wedding wedding?”

Inevitably, I found out what an un-wedding wedding is. It’s a full-blown wedding, only the host isn’t actually getting married. He or she wants to get married but isn’t – and goes through the motions anyway.


This manipulation of celebratory events to fabricate optimism about a desired future reminds me of the state of housing in the United States today.

Here’s why…

The Un-Recovery

There’s no reason to celebrate anything in the housing market’s un-recovery recovery.

Past and present manipulations must be continued to prevent collapse, but they won’t help economic growth in the United States as they did until 2000. Instead, those manipulations only act as a headwind from time to time.

Take February housing “starts.” They were down 17% from January. The annualized single-family starts number for February was 593,000 units, which was essentially flat from the year-ago February 2014 starts number of 589,000.

According to the U.S. Department of Commerce, “Start of construction occurs when excavation begins for the footings or foundation of a building.”

In a recent column, David Stockman, the head of the Office of Management and Budget in the Reagan administration, says the slow starts aren’t due to the weather – although February 2014 and 2015 were especially cold months in the East – but about swings in interest rates.

“The seasonal adjustments are supposed to factor in weather,” Stockman writes. But the raw unadjusted, non-annualized starts number for February 2015 was 40,700. In February 2014, it was 40,600. In 2009, it was 25,000. In 2005, starts were 124,000, and in 2000, they were 88,000 units.

He makes the case that Federal Reserve manipulation of interest rates, not weather, caused these wild fluctuations.

“In short, in the name of improving upon the alleged instability of the private economy – absent the Fed’s expert ministrations – the geniuses in the [Fed] have actually caused the rate of housing starts to gyrate wildly,” Stockman writes.

Stockman goes on to say that the U.S. economy isn’t analogous to a giant bathtub, as Keynesians might suggest. That’s because, he writes, pouring “‘demand’ into the housing market through what amounts to cheap, subsidized interest rates (from the hides of savers) and, presto, activity rates will soar.”

That hasn’t happened.

Free Market Suppression

New home sales in February rose 7.8%, to a seasonally adjusted 539,000 units. That’s the best number for new home sales in seven years.

Still, according to a graph on the National Association of Home Builders’ website, new single-family home sales going back to 1978 show that current levels of sales are barely approaching 1980 levels. They are more than 50% below average sales from 1980 to 2006.

While new home sales, which make up one-tenth of home sales, on the surface looked robust in February, existing home sales rose a scant 1.2% according to the National Association of Realtors.

That’s what I call an un-recovery recovery, or a bum wedding.

Free-market capitalism wedded to democracy yields a living, changing economic system that thrives on creative destruction and withers under socialist-style command and control. The Federal Reserve’s interest-rate manipulations over the past 20 years only prove they are incapable of fostering natural growth in the economy.

The Fed never should have been allowed to manipulate rates so low for so long to inflate the housing bubble in the first place. Fannie Mae and Freddie Mac had to be bailed out, but by now should have been dismantled. They’re backing more mortgages now than ever before.

While two governments and the Fed couldn’t let the financial system implode and too-big-to-fail insolvent banks eat their own poison, everybody should have by now worked together to have broken up Fannie Mae and Freddie Mac once they were back on their feet.

What people forget is the Fed and the government helped bail out builders after the crash.

In a May 6, 2010, Reuters article, author Helen Chernikoff quoted Moody’s Economy.com Chief Economist Mark Zandi saying, “Without the government’s support, in all likelihood we would have seen more failures among the builders. It’s almost hard to list all the things that have been done to support homebuilding either directly or indirectly.”

Then the Fed, with a wink and a nod from successive government administrations went on a $2 trillion Treasury bond-buying binge to start up its zero interest-rate policy (ZIRP).

And to prove no matter how much money it throws at housing it is hapless, the Fed bought $1.8 trillion of mortgage-backed securities (MBS) to narrow the MBS-over-Treasury spread to try and make more mortgage money available.

That didn’t work.

The Takeaway

Without a so-called “clearing mechanism” that balances home sales and rental rates based on supply and demand against free-market interest rates reflecting real-world risk and returns in the $16.8 trillion U.S. economy, not only won’t the housing market ever fully recover, but the economy won’t either.

Like an un-wedding wedding, the housing market’s un-recovery recovery is a sad state of affairs.

P.S. I encourage you all to “like” and “follow” me on Facebook and Twitter. Once you’re there, we’ll work together to uncover Wall Street’s latest debaucheries – and then we’ll bank some sky-high profits.

Source :http://moneymorning.com/2015/03/30/with-yemen-burning-arab-spring-ii-is-underway/

Money Morning/The Money Map Report

©2015 Monument Street Publishing. All Rights Reserved. Protected by copyright laws of the United States and international treaties. Any reproduction, copying, or redistribution (electronic or otherwise, including on the world wide web), of content from this website, in whole or in part, is strictly prohibited without the express written permission of Monument Street Publishing. 105 West Monument Street, Baltimore MD 21201, Email: customerservice@moneymorning.com

Disclaimer: Nothing published by Money Morning should be considered personalized investment advice. Although our employees may answer your general customer service questions, they are not licensed under securities laws to address your particular investment situation. No communication by our employees to you should be deemed as personalized investent advice. We expressly forbid our writers from having a financial interest in any security recommended to our readers. All of our employees and agents must wait 24 hours after on-line publication, or after the mailing of printed-only publication prior to following an initial recommendation. Any investments recommended by Money Morning should be made only after consulting with your investment advisor and only after reviewing the prospectus or financial statements of the company.

Money Morning Archive

© 2005-2022 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in