Real Estate Turnaround?
By Greg Hunter’s USAWatchdog.com
There was some good news released yesterday by the Standard & Poor’s/Case-Shiller home price index. Residential housing prices rose .5% year-over-year for the first time since June of 2010. In a press release, David M. Blitzer, Chairman of the Index Committee, said, “All 20 of the cities saw average home prices rise in June over May and all were by at least 1.0%. . . . We are aware that we are in the middle of a seasonal buying period, but the combined positive news coming from both monthly and annual rates of change in home prices bode well for the housing market.” (Click here for the complete Case-Shiller press report and release.)
Does a .5% increase (year-over-year) really “bode well for the housing market”? It has been widely reported the Federal Reserve has spent trillions of dollars suppressing interest rates. There’s been quantitative easing (money printing), “Operation Twist” and near 0% interest on a key Fed lending rate. A 30-year mortgage is hovering at or near historic lows–around 3.5%. This is all we got after all that? According to the latest Case-Shiller report, “As of June 2012, average home prices across the United States for the 10-City and 20-City Composites are back to their summer 2003 levels.” Home prices are back to where they were 10 years ago and this is good news?
The 0% Fed interest rate policy and suppression game may be great for home buyers, but it is a total rip-off for savers. People trying to get a return on their hard earned money are being robbed of hundreds of billions of dollars a year because of artificially suppressed interest rates. CD’s are paying a fraction of a percent for locking up money for years!
Bloomberg was also jumping on the “good news” housing band wagon yesterday. “Finally, the housing market is forming a bottom,” Mohamed El-Erian, chief executive officer and co-chief investment officer of Pacific Investment Management Co., said on Bloomberg Television’s “In the Loop” with Betty Liu. “That should be welcome. It is not surprising because affordability is so attractive right now.” (Click here for the complete Bloomberg story.) I guess Mr. El-Erian is right when he says, “the housing market is forming a bottom.” But I think you have to add one caveat to the equation, and that is the housing market is forming a bottom as long as mortgage interest rates are artificially suppressed!
Remember, home prices are where they were 10 years ago. You know what the average 30-year mortgage rate was 10 years ago today? It was 6.32% for a 30-year loan. (Click here and see for yourself courtesy of ycharts.com.) It is a little less that twice where they are right now. What do you suppose would happen to that “bottom” in home prices if the Fed stopped or could no longer suppress mortgage interest rates? I would say the price declines would look like a cliff dive into a glass of water.
In a Cato.org article two weeks ago, monetary specialist James Dorn wrote, “The presumption is that the Fed can promote economic growth through easy money and “exceptionally low” interest rates. More likely, the Fed is creating another asset bubble, this time in the bond markets. . . . Investors have relied on the Fed to prop up prices when economic news is dismal. The “Bernanke put” has replaced Greenspan’s. The longer the Fed waits to normalize rates, the more costly the final adjustments to market realties will be.” (Click here for the complete Cato.org report.)
So, is this a true real estate turnaround? I say no way. When interest rates go back up, it won’t only be housing taking a cliff dive. It will be the entire economy.
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About the Author
Greg Hunter
Greg is the producer and creator of USAWatchdog.com. The site’s slogan is “analyzing the news to give you a clear picture of what’s really going on.” The site will keep an eye on the government, your financial interests and cut through the media spin. USAWatchdog.com is neither Democrat nor Republican, Liberal or Conservative. Before creating and producing the site, Greg spent nearly 9 years as a network and investigative correspondent. He worked for ABC News and Good Morning America for nearly 6 years. Most recently, Greg worked for CNN for shows such as Paula Zahn Now, American Morning and various CNN business shows.
Hi Greg,
With inflation at an average 10% per year in true purchasing power, how is a 1% or even 5% rise in home prices really a rise? The rise they think they see is only in nominal terms, not what that dollar will actually purchase. There is a fuzzy, comforting notion is most peoples’ thinking that the US dollar is stable, but it is being quantitatively eased away with every passing day. Keep us informed, Greg. We really appreciate it.
From what I see in my line of work, working on foreclosed properties, that the banks REO properties are being held off market shorting the real supply of properties.
I really don’t see it. Homeowner are under more pressure than ever before and I suspect there is still more shakeout to come. The facts that wages have remained essentially flat while inflation steadily climbs faster than wages.
We are still deep into the asset bubble and the markets have never returned to normal after being raped and bastardized for a profit. Do you really think that markets have deflated enough to shrink the hole in the asset bubble? Do you think that the banks have recovered from their mortal fiscal wounds?
I actually see this as the calm before the storm. Nothing has been done to stop the systemic risks of the banksters who have taken risk-deferment to a new scientific standard laying all of their risk at the taxpayer feet. Please we must kill Fannie Mae and Freddie Mac and end backstopping the real estate industry with tax dollars. The government is not the “insurer of last resort” and should not be taking on the liabilities of any industry failure.
Look at crop insurance losses…. The insurance industry is losing their butt this year but the government will bear the brunt of the loss not the insurance companies.
Thank you Mitch for adding to the analysis of this post!!
Greg
Hi Greg, Slightly off topic 🙂 but I just came across this table and finally realised why my Dad left the UK in 1978 (and never paid UK taxes again…… The reason: An 83% income tax rate.
http://www.hmrc.gov.uk/stats/tax_structure/incometaxrates_1974to1990.pdf
I guess this is what happens when a Govt gets desperate for money and thinks high taxes are a way to get it!!!
Cheers!
Fred
@spotgoldprice
Thank you Fred, CPigeon Graham and Doug for the comments!!
Greg
Housing prices are up due to the fact that a large quantity of foreclosures is being withheld from the market by the Banks. Even after the “robosigning” class action settlement, the number of forelosures has not returned to the previously high level of sales. Conventional home sales are not being undermined by foreclosure low prices and the average sale price appears to be increasing. This will change dramatically when the floodgates are allowed open…
I think this is about the November election, once that’s out of the way we will see a decline in prices again.
Hi Greg, ! would say a 0.5% inflation rate in home prices ought to be considered good news considering all the printing. 2003 was back just prior to the housing taking off so you could say those were more rational prices. ! expect home prices to accelerate once uncle ben gets banks lending again instead of sitting on their assets. The rumored buy-up of MBSs may do that. They will do something to increase velocity and that will drive prices higher across the board. As for savers getting screwed, the fed is on the other side of that deal so it won’t be changing. At some point people will lose faith in dollars. !’m beating the rush by going short dollars and long gold, silver and rental property. The rules are the rules so you must use them to your advantage. Thanks for getting the word out there about what’s really going on.
Greg, I sent you a message 2 days ago about some of this information from a broker’s stand point. Would love to hear from you.
Reese Freyer
This may have gotten caught in my spam filter accidentally. Please send it again.
Greg
http://www.moneyandmarkets.com/how-to-survive-americas-great-fiscal-cliff-50357
I read this interesting piece last night. Doesn’t sound like any rebound is coming to me.
Greg:
You are very likely right again on the subject of housing. The .005% increase sounds great. I read where even Detroit was participating in an uptick. However, real estate is all local and here’s my situation in Central Idaho: My valuation is still 41% below that of 2003. I have to go back to 2000 to find comparable value with today. Have tried to sell our home for two seasons; just took it off the market again…no buyers. So much for statistics!
Question: Theory says interest rates will climb but I’m having a hard time figuring out who will create the demand for money to cause the effect, especially when they keep printing and increase the supply year over year!
Dennis
Hey Greg. Went to pick up some more silver yesterday. Greensboro dealers are now selling 1 oz. walking liberties at $5.00 over spot price. Something in the air that people need to understand. More bad news on the horizon for sure and limited time to prepare I’m afraid.
Thank you for the reporting NC!!
Greg
I say your spot on in this article Mr. Hunter. Thank you.
Every time I read one of these reports on the real estate market, I envision Carnival Barkers and Snake Oil Salesmen. If industry doesn’t return and employment doesn’t rise, just who is going to buy these homes at such ridiculus prices? Are we again going to fall for the “Greater Fool Theory”. This is all hype and what they are trying to do is change the preception of the market short term. Look at all the warnings of financial collapse. Take your money out of the banks. Move out of paper assets. Buy Precious metals. Get of debt. Stay out of debt and put something away for a rainy day. But! It’s a good time to buy a house because the prices are going to go up. I can not help to believe that the real estate agents are just trying to get back to thier champagne and caviour lifestyle. I mean would you trust the same people who screwed you in the first place. I’m talking bankers here too. There is enough blame to go around and would not exempt those who entered these contracts. Buyer Beware. Still those in the know should not have perpetrated these exotic loans on the public.
I don’t begrudge anyone buying a home or making a living, just that you be realistic about it.
Hello Greg:
It seems to be a very confusing time. As you know I read you (and a few others) dutifully. I read that credit default swaps and other interest rate derivatives (bets on interest rates) by the top five US Banks is pushing towards $300 Trillion and pushing up to and over $1 Quadrillion world wide (I don’t know if anybody knows the real numbers). Is it true that if The Federal Reserve raises interest rates it would cause a panic and perhaps a collapse of our domestic and international banks? Why? They’d lose their bets. I viewed both your interviews with Paul Craig Roberts (and others) and I think I recall this was discussed.
The Fed probably has to raise interest rates in part to strengthen the US dollar. But they can’t because it would again crash the real estate market, as you mentioned, and eventually cause the Banks to collapse and close their doors. It’s a real dilemma isn’t it? Geez…The system is utterly corrupt and rotten and we can’t do anything about it because is would send us so far back that those in power and with influence do not want to even contemplate the consequences – so they avoid it and HOPE it all goes away like an evening nightmare. Am I close?
LSW,
Yes you are close but remember the fed is not omnipotent. They can, and I think they will lose control at some point. That’s what “Black Swans” are all about. You do not see it coming, if you do it is not a “Black swan.” All you you can do right now is put you and your family in the best position possible to ride out this transition. Thank you for the comment.
Greg
Greg, let us not forget the National Association of Realtors LIED about the number of
home sales from 2007 to 2011. They exaggerated sales for 5 years to help hide the
catastrophe that has been the real estate market and to continue to lure suckers in the
inferno wih their incessant BS. There does not exist a market that has not been manipulated by these shysters.
How can we believe anything reported? We simply cannot.
Super,
Great point. Thank you for making it here!!
Greg
The longer they can fool the masses, the more time we have to prepare for the inevitable collapse. Be thankful that those who are kicking the can have strong legs.
Greg,
The reality is those low rate loans are B – S !. There are actually many homes ,if you do your research, that are priced way below replacement value. The “real” rate of inflation as described by the CPI numbers are hilarious if you have a macabre sense of humor. The shadowstat inflation numbers are above 8% – and even that is a gift. Try to get an appraiser to give a reasonable number to a house when they themselves are afraid of being sued. If you can buy a home and actually qualify for a loan at 3.55 or even at 4% you SHOULD DO IT. But – good luck with that– all this QE jazz did was re-fi the banks who now hold treasuries and are smart enough to know that lending at these rates makes NO SENSE.
So if you get a 30 year fixed 4% loan in an 8% inflation era — you are “making” 4% profit with their money per year.
Business is waiting to explode if Romney gets elected and fiscal policy is not day to day and taxes are not aimed at them because they are considered villains. The most important election of modern times.
As an aside– The travesty of MF Global will have major ramifications if the rumor of a Morgan Stanley collapse proves to be true. I would bet anything that the same ruling will be used to exonerate the banksters from the theft of private citizen accounts– which will sadly finally bring outrage to the massive corruption that now is systemic, routine and almost expected to the masses. Unfortunately — it will be too late.
Thank you
Greg, low interest rates benefits the wealthy to buy up homes after the banks did the elite’s dirty work for them and foreclosed and kicked the homeowner out of it. When interest rates rise, and they will, home prices will fall accordingly and hopefully the people who have bought those homes at auction will lose their investments which was taken on the backs of the working class in the first instance. Sound angry do I? Not really, just look at who benefits from any event and you can see how it happened. The mafia has a saying: Follow the money and you will know who was behind it. The banks, the elite, and the wealthy class have benefited from the cheaper properties prices and the people who lost them. Shame on those greedy Americans, can’t respect people who use others for their gain instead of working hard to produce wealth by their backs and hard work.
When you calculate in the rate of inflation, or more accurately the loss in value of the dollar, home prices are significantly lower than they were 10 years ago.
Housing is simply reaching a level now where inflation is catching up with valuations.
Going forward housing will once again become a hedge against dollar devaluation while allowing purchasers to partly fix housing costs.
Home ownership was never supposed to be an investment; it was supposed to be a way to stabilize housing costs.
Now for those who are in the position to invest in rental/investment real estate, I believe this is a sweet spot in history, and that the combination of inflation and low interest rates will prove profitable in years to come.
Jim H,
Bravo my friend. Very good point!!! If you factor real inflation into the GDP numbers growth is nonexistent. Thank you for your comment and analysis.
Greg
Thanks again Greg…….God Bless You
Thank you Kenny. You are very kind!
Greg
This may not be the best place to ask this, but I want to know if I’m eligible for a short sale and I don’t know how to find a good, local realtor… have you ever heard of this realtor? They’re listed in the city of Fair Oaks, CA 15 minutes from me and I can’t find reviews on them – Becky Lund & Associates, 8814 Madison Ave Fair Oaks, CA 95628 (916) 531-7124.