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Friday, July 19, 2013

Are rising home prices really a good thing for America?

Today we're going to talk a little bit about housing

Because the stock market is very complicated to a lot of people, the media tries to tie notions of pretend 'recovery' to what the Dow is doing..

If it goes up, then America is strong and feel free to wave your flags with as much patriotic 'We're #1!' fervor as you can muster while hunting the want-ads..

If if goes down..the media will distract you with the goings-on of 4th tier celebs like the Kardashians or wall to wall coverage of local court trials...
The corporate owned media also loves using real estate figures to promote the propaganda of economic positivism.

While doing research as to how the media trumpets positive housing figures, we found one quite irritating headline about all others, written June 27th of this year:

"America, you may now thank Wall Street for your housing recovery"

If there's such a thing as evoking a comedic spit take all over one's keyboard keys at the reaction of something read online, that would do it...
Thank Wall Street?  How about that media member go F himself...

He writes:

"We’ve told you ad nauseam that US housing was recovering. One of the latest updates this week showed the 20-city Case-Shiller housing price index surging 12.1% from the prior year in June...

We’ve also told you that a big part of the push higher in prices has been driven by purchases by investors. That includes Wall Street..."  

Of course this dirt-dog makes no mention of the shadow inventory of homes banks are holding onto (for every home available for a buyer to purchase, there's 2 homes purposely not placed on the market)
This is to control supply/demand so prices can stay at an artificial stable level rather than drop another 15-25% in value which it would if the Big Boys weren't manipulating every aspect of this fake 'recovery'...

Anyways.. the latest information about housing isn't so rosy and pollyanna...   June housing starts fell 9.9% to an annualized rate of 836,000—the lowest level since August 2012 and far below what economists had expected.

The drop in housing starts was led by a decline in multifamily construction, which fell 26.2% versus 0.8% drop for single-family houses.
The response of one economist to the news:  

“We should be more cautious about our optimism.”

You think?  

The Christian Science Monitor had this headline: 'Housing starts fall in June, but there's a silver lining'

Oh really.. pray tell what silver linings are there?
The 'lining' was that permit applications for single-family homes hit a five-year high.

Let's follow this logic through..  permit applications to build new homes is a 5yr high and yet the actual beginning of such construction is down its lowest in nearly a full year...

Bit of a disconnect don't you think?

Of course good ol' Wall Street-- our saviors according to many in the media.. made out like bandits on the news..   
See, the Big Boys want housing to grow as long as they can profit off the buy low/sell high principles of speculative buying i.e. professional house flipping..

But when positive housing means a greater chance of QE tapering then... uh uh..  Nope.. 

So the theory of expectations is used in reverse...

Economists predict numbers greater than reality so that it will be sure to miss.. This comes across as a 'negative' and the Big Boys can show their bitch Bernanke once again QE can't be slowed down...

Negatives become positives..
If you don't understand the game being played, then you're truly out of the loop...

We're talking about $85 billion a month.. $2 million spent every Second!  No way good ol' Wall Street is going to give up that tax payer money without a big fight and a lot of manipulations and chicanery...

Let's cut through the nonsense..

The notion that people must borrow heavily from banks in order to be able to afford to live in homes is utterly outrageous but so indoctrinated into our minds that we know nor accept any other way...
Back in 1960, the average cost of a new home was $12,700.  The average income was $5,315.00.  It was commonplace back in 1960 that 1 breadwinner could support a family of 4 on his wages.

A gallon of gas cost 25cents/gal. and the average car cost $2,600..

Today the average home costs $212,700 and the average income is $40k

So in the last 53 years, home values have increased over 16x in value while wages have increased just under 8x...
Gas has gone up 15x in price and automobiles by 12x...

Banks paid 3.38% interest on savings back then..

Back in 1960, you could buy a home and put down 40-50% with little difficulty.  Today?  Good luck putting down 10%...

And who steps in to fill the void when someone wants to buy a home with limited income?
Yep... those G-D banks...

Lets say someone back in 1960 and the present bought their homes while putting 10% down and mortgaging the other 90% for 30 years..  To make it fair, the 1960 mortgage will be at 7.25% while the current mortgage at 4.25%

 How would those figures look?
1960 home:  

Cost- $12,700 minus 10% down payment ($1,270) ...

Equals $11,430 borrowed

360 payments of $77.97 each

Total amount paid back:  $28,070.19  ($16,640.19 interest)
2013 home:

Cost- $212,700 minus 10% down payment ($21,270)...

Equals $191,430 borrowed

360 payments of $941.72 each

Total amount paid back: $339,019.39 ($147,589.39 interest)
Everyone supposedly wants home prices to keep going up... to keep soaring until pre-recession levels and beyond..  The banks, Wall Street, politicians...

Why the hell do you??

Obviously if you're a seller you want to profit but take off that 'hat' for a moment...  Average wages are lowering and home prices are rising... That means more bank borrowing... or being forced to rent.
And the only people who really can afford to buy these homes are the wealthy, the 'home flipper' and foreigners... We have to thank the wealthy from Russia, Brazil, India, China and elsewhere for our so-called housing recovery..

You and we Americans sure aren't doing it..  we do not benefit from this BS home 'recovery' in any way...

If home values weren't so artificially fixed, they would continue to drop until a natural middle ground point was reached where enough people earning a living with lower wages could purchase which would in tern increase buyer demand.
This is called a natural real estate market reset.

Of course banks would hate it because it would mean less borrowing i.e. less profit...  

The Fed would hate it because their sole concern is bank profitability..

Local governments in particular would hate it because it means less property taxes based on assessed values
And we know sellers would hate it... No explanation needed...

But instead everything must go up... the Dow, home prices, car prices, taxes, utilities, food, clothing...

Everything is going up but wages...

And this is called 'recovery'.