Saturday, May 25, 2013

New Bubble: New Home Prices Taking Off

From ZeroHedge, comes news that the average new home sales price has reached an all-time high of over $330,000.  This is up from only $230,000 from a decade ago. The Federal Reserve has done it!  With manipulated and entirely too low interest rates and with unlimited (sub-prime?) loans made to questionable borrowers from the Federal Goverment, the Fed has finally done it!  (remember that Fannie and Freddie make up over 90% of the mortgage market)

Yeah, the government has used every arrow in it's quiver to bail-out underwater loans, bail-out banks and try to create a sense of prosperity or "wealth effect" in housing, stocks, and you-name-it.  Don't you feel so great?

The sad thing is that the next generation of buyers is sure to be priced out of the market if interest rates EVER return to "normal."  Real income is stagnant, so higher prices for houses (or anything) puts homes even more out of reach.  See the graph of Real Personal Income below (the 2nd graph).

That same generation will also shoulder the unimaginable burden of debt that we're bligthly accumulating for our own current consumption and bail-outs.

It's entirely possible that home prices could sag again if the props are ever removed.  But this market, and so many others, are so entirely manipulated by the government, it's hard to imagine the government withdrawing---EVER.  Maybe the restoration of free markets has to await the next Republican president.      

Meanwhile, real income has stagnated, making home ownership more questionable for the next generation of buyers.  Have a look at the graph of real personal income below.

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