The Census Bureau reported that New Residential Sales In February 2016 declined by 6.1 percent compared to the same month last year. Unlike some cheerleader economists, the weakness in new home sales does not surprise me in the slightest. I would also point out that contrary to the opinion some pompous housing “experts” this was not a “decent” report. It was actually a wake-up call for the housing pundits who continue provide cover for failed monetary policy and the government’s refusal to reform the financial system. The sad truth is that the U.S. real estate market is broken. Considering all of the fraud that was covered up in the last crisis and the subsequent upward redistribution of wealth that obliterated the middle class, what did the policy experts expect? A real, sustainable recovery? Hah!
Let’s take a look at the latest new home sales chart and see what it’s telling us. The last two months of new home sales have been negative year-over-year. The average price of a new home contracted in Febaury was actually $7,000 LOWER than February of 2015 and new home sales still declined. I would also point out that this year-over-year sales decline has occurred while lenders are loosening their requirements for mortgages! We are again seeing low-down-payment financing options and even interest-only mortgages while credit standards are loosening. Considering we’ve thrown everything but the kitchen sink at the housing sector, sales should be skyrocketing. The bigger question is why they aren’t? It is quite obvious that homes are once again NOT affordable for many Americans. The other piece of the puzzle goes back to the lack of meaningful reform.
Earlier this week the National Association of Realtors reported that existing home sales for February were also weaker than expected. Indeed the first quarter has been a big disappointment for the housing cheerleaders and apologetic economists who continue to ignore the elephant in the room. Nobody wants to mention the “F” word, because uncomfortable truths are not supposed to be discussed in a friendly, sales-oriented business. Your typical home buyer taking out a loan to buy a home is now potential collateral damage caused by the lab rats dictating monetary policy. More sophisticated buyers realize what is happening, and they are taking appropriate safeguards and stepping back from the market. Many less sophisticated borrowers probably have no idea of the potential hazards and just want a place to live. Unfortunately, there are few people looking out for their interests in our hyper-financialized world.
The next time someone tries to tell you how “affordable” a home is, consider the source and do your own homework. Many new home sales reps in our area will still tell you that today is a great time to buy a new home, and that may well be the case. It all depends on the circumstances and your definition of “affordable” I suppose. What I do know for a fact is there are still more chickens coming home to roost in this housing market cycle. This chart comparing new home sales to prevailing mortgage rates helps to explain the game the Fed has been playing, and why home sales are stagnating. The problem for the housing market is that absent a full-blown market crash it will be tough to push rates below 3.5 percent. New home prices are already sky high, so any meaningful rise in interest rates will cook the golden goose.
“Nothing more clearly demonstrates who has been calling the shots in the Obama administration than the President’s nominees to oversee Wall Street at the U.S. Justice Department, U.S. Treasury Department, Securities and Exchange Commission, and his outrageous refusal for more than five years to even follow his own Dodd-Frank financial reform law and appoint a Vice Chairman for Supervision at the Federal Reserve.” Wall Street on Parade
“Predator Nation demolishes the view that the global financial crisis was merely some sort of freak accident. Charles Ferguson makes a convincing case that the world’s banking system was brought to the brink of complete collapse in 2008–09 by a virulent combination of unchecked greed and criminal behavior.
This is an epic crime story with an apparently clean getaway, courtesy of the George W. Bush and Barack Obama administrations. Both presidents proved unwilling to hold anyone to account—or even to launch meaningful investigations.
Leading bankers walked away with billions of dollars in unjustified compensation. The costs imposed on the rest of us can be measured in the trillions of dollars.” Simon Johnson, book review of Predator Nation
‘The Big Short‘ author, Michael Lewis, explains why bailing out the banks was a mistake…