Best of the Week
Most Popular
1. Market Decline Will Lead To Pension Collapse, USD Devaluation, And NWO - Raymond_Matison
2.Uber’s Nightmare Has Just Started - Stephen_McBride
3.Stock Market Crash Black Swan Event Set Up Sept 12th? - Brad_Gudgeon
4.GDow Stock Market Trend Forecast Update - Nadeem_Walayat
5.Gold Significant Correction Has Started - Clive_Maund
6.British Pound GBP vs Brexit Chaos Timeline - Nadeem_Walayat
7.Cameco Crash, Uranium Sector Won’t Catch a break - Richard_Mills
8.Recession 2020 Forecast : The New Risks & New Profits Of A Grand Experiment - Dan_Amerman
9.Gold When Global Insanity Prevails - Michael Ballanger
10.UK General Election Forecast 2019 - Betting Market Odds - Nadeem_Walayat
Last 7 days
Stock Market Dow Long-term Trend Analysis - 16th Oct 19
This Is Not a Money Printing Press - 16th Oct 19
Online Casino Operator LeoVegas is Optimistic about the Future - 16th Oct 19
Stock Market Dow Elliott Wave Analysis Forecast - Video - 16th Oct 19
$100 Silver Has Come And Gone - 16th Oct 19
Stock Market Roll Over Risk to New highs in S&P 500 - 16th Oct 19
10 Best Trading Schools and Courses for Students - 16th Oct 19
Dow Stock Market Short-term Trend Analysis - 15th Oct 19
The Many Aligning Signals in Gold - 15th Oct 19
Market Action Suggests Downside in Precious Metals - 15th Oct 19
US Major Stock Market Indexes Retest Critical Price Channel Resistance - 15th Oct 19
“Baghad Jerome” Powell Denies the Fed Is Using Financial Crisis Tools - 15th Oct 19
British Pound GBP Trend Analysis - 14th Oct 19
A Guide to Financing Your Next Car - 14th Oct 19
America's Ruling Class - Underestimating Them & Overestimating Us - 14th Oct 19
Stock Market Range Bound - 14th Oct 19
Gold, Silver Bonds - Inflation in the Offing? - 14th Oct 19
East-West Trade War: Never Take a Knife to a Gunfight - 14th Oct 19
Consider Precious Metals for Insurance First, Profit Second... - 14th Oct 19
Stock Market Dow Elliott Wave Analysis Forecast - 13th Oct 19
The Most Successful IPOs Have This One Thing in Common - 13th Oct 19
Precious Metals & Stock Market VIX Are Set To Launch Dramatically Higher - 13th Oct 19
Discovery Sport EGR Valve Gasket Problems - Land Rover Dealer Fix - 13th Oct 19
Stock Market US Presidential Cycle - Video - 12th Oct 19
Social Security Is Screwing Millennials - 12th Oct 19
Gold Gifts Traders With Another Rotation Below $1500 - 12th Oct 19
US Dollar Index Trend Analysis - 11th Oct 19
China Golden Week Sales Exceed Expectations - 11th Oct 19
Stock Market Short-term Consolidation Does Not change Secular Bullish Trend - 11th Oct 19
The Allure of Upswings in Silver Mining Stocks - 11th Oct 19
US Housing Market 2018-2019 and 2006-2007: Similarities & Differences - 11th Oct 19
Now Is the Time to Load Up on 5G Stocks - 11th Oct 19
Why the Law Can’t Protect Your Money - 11th Oct 19
Will Miami be the First U.S. Real Estate Bubble to Burst? - 11th Oct 19
How Online Casinos Maximise Profits - 11th Oct 19
3 Tips for Picking Junior Gold Stocks - 10th Oct 19
How Does Inflation Affect Exchange Rates? - 10th Oct 19
This Is the Best Time to Load Up on These 3 Value Stocks - 10th Oct 19
What Makes this Gold Market Rally Different From All Others - 10th Oct 19
Stock Market US Presidential Cycle - 9th Oct 19
The IPO Market Is Nowhere Near a Bubble - 9th Oct 19
US Stock Markets Trade Sideways – Waiting on News/Guidance  - 9th Oct 19
Amazon Selling Fake Hard Drives - 4tb WD Blue - How to Check Your Drive is Genuine  - 9th Oct 19
Whatever Happened to Philippines Debt Slavery?  - 9th Oct 19
Gold in the Negative Real Interest Rates Environment - 9th Oct 19
The Later United States Empire - 9th Oct 19
Gold It’s All About Real Interest Rates Not the US Dollar - 8th Oct 19
A Trump Impeachment Would Cause The Stock Market To Rally - 8th Oct 19
The Benefits of Applying for Online Loans - 8th Oct 19
Is There Life Left In Cannabis - 8th Oct 19
Yield Curve Inversion Current State - 7th Oct 19

Market Oracle FREE Newsletter

Stock Market Trend Forecast Oct - Dec 2019 by Nadeem Walayat

The U.S. Housing Market Recovery Is Fabricated Optimism

Housing-Market / US Housing Mar 26, 2015 - 10:36 AM GMT

By: Money_Morning

Housing-Market

When I moved to Sarasota 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. They want to get married but aren't, and go through the motions anyway.


The truth about the manipulation of celebratory events to fabricate optimism about a desired future reminds me of the state of housing in America today. Here's why…

Celebrating Housing Market's Recovery Is a Mistake

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 they'll only act as a headwind from time to time.

Take February housing "starts" for example, they were down 17% from January. The annualized single-family starts number for February was 593k units, which was essentially flat from the year-ago February 2013 starts number of 589k.

According to the Commerce Department, "Start of construction occurs when excavation begins for the footings or foundation of a building." David Stockman, the former head of the Office of Management and Budget in the Reagan administration, says slow starts aren't as much weather-related – although February 2013 and 2014 were especially cold months in the East – but about swings in interest rates.

At his DavidStockmansContraCorner.com site in a column titled, "Pulling on a String: The Fed's Spectacular Failure to Stimulate Housing" Stockman explains:

"The seasonal adjustments are supposed to factor in weather," said Stockman. But the raw unadjusted, non-annualized starts number for February 2014 was 40,700. In February 2013, 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 rather than weather being the reason starts fluctuate so much over the same month of different years, Federal Reserve manipulation of interest rates has caused the 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 Eccles building have actually caused the rate of housing starts to gyrate wildly," said Stockman.

Stockman goes on to say that the U.S. economy isn't analogous to a giant bathtub, as Keynesians might suggest, as 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.

Residual Free Market Props Are Suppressing the Housing Market

New home sales in February rose 7.8%, to a seasonally adjusted 539,000 units. That's the the best number for new home sales in seven years. Still, according to a graph on the NAHB's website, new single-family home sales going back to 1978 shows that current levels of sales are barely approaching 1980 levels. They are more than 50% below average sales from the period between 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 bailout builders after the crash.

Turning to a May 6, 2010, Reuters article, "Bailed Out Homebuilders Collect Fat Paychecks," 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-buying binge to effect their ZIRP, or zero interest rate policy.

And to prove no matter how much money they throw at housing they are hapless, the Fed bought $1.8 trillion of mortgage-backed securities 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 U.S.'s $16.8 trillion economy, not only won't the housing market ever fully recover, the economy won't either.

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

Source :http://moneymorning.com/2015/03/25/cnbc-is-hazardous-to-your-financial-health/

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

© 2005-2019 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

6 Critical Money Making Rules