He’s still dead, Jim: Zombie Housing Market Shambles On

February 22, 2012 | Filed under Economics | Posted by

Dammit Jim, I’m a Doctor not a necromancer.

But we set interest rates at nothing…

He’s still dead, Jim.

But.

Dead.  Jim.

ZeroHedge plays the role of Dr. “Bones” McCoy in today’s edition of Obamanomics Today:

 

Zombie Housing Market Chronicles – Fed Fails Again To Stimulate A Housing Recovery

By Tyler Durden | Zero Hedge

While today the association of real estate advertising agents known as the NAR will tell us that the home market is improving – an economic observation which we will completely ignore as any data out of the NAR is now proven to be manipulated and fraudulent, a far better indication of the ongoing implosion in the housing market, and more importantly – the sheer powerlessness of the Fed to do anything about it – came out of the latest weekly Mortgage Brokers Association, which showed that refi applications were down 4.8% W/W, while purchases slid 2.9%, after collapsing 8.4% in the past week. This has taken the Purchase Application index back to the September lows, which just happens to be the lowest print in 16 years! And while this in itself would be ok if not exactly good, it took place at a time when the 30 year mortgage rate was down to all time record lows! In other words, Bernanke’s sole prescription to fix the broken housing market diagnosis – low mortgage rates, has now been proven to be a complete disaster, even as Obama does everything in his power to get debt repudiation for deadbeats (at the expense of everyone else of course) and fails. So: what’s the next plan?

One would think record low mortgage rates would be good for the housing market: one would be dead wrong.

Is this is what a housing recovery looks like?

 

The answer to that question (Is this what a housing recovery looks like?) would be NO.

Then again this whole “recovery ” continues to look a lot more like stagnation than recovery.

 

But Bones, it’s still walking…

Dead

Jim

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Posted by on February 22, 2012.
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  • herddog505

    I hope that this means that our national obsession with “home ownership” has, if not ended, then at least cooled.  As a side benefit, I also hope that the dubious practice of “flipping” will no longer plague us.

    With the regard to the charts, do you know where this data came from?  What is being measured in the second chart?

    • herddog505

      Here are some additional charts.  They show that US housing prices (adjusted for inflation), were essentially stable for fifty years after World War II, then took off like a bloody rocket near the end of the ’90s.

      Questions:

      1.  What caused the inflation-adjusted housing price to increase so rapidly in the ’90s?

      2.  Is the fall of the price after 2008 a cause or effect of the economic crisis?

      3.  In the second chart, it seems that there is a marked increase in the nominal house price after about 1970.  What caused this?

      4.  How does government action affect housing price?

      It would be of some interest to plot interest rates on these charts.

      http://www.lesjones.com/2008/11/25/inflation-adjusted-us-house-prices-1975-2008/

      • jim_m

          What caused the inflation-adjusted housing price to increase so rapidly in the ’90s?

        Part of that answer is in the incentives the government initiated in the 90′s to force mortgage lenders to finance more and more marginally qualified borrowers.  With more borrowers able to get larger sums of money the housing market rose higher than it would have otherwise. 

        • herddog505

          I agree, but is that all there is?  It seems to me that something truly extraordinary happened in the late ’90s; there hasn’t been a jump in housing price like that in US history, not even after World War II.

          • jim_m

             Sure, but it’s all part of the same thing.  It was the easy money available with low interest rates and the government leaning on lenders to make more loans.

            If money is going into housing it has to come from somewhere.  The low rates and increased availability go a long way to explaining that.

          • http://pulse.yahoo.com/_W6UJJOM4PP4XLSBG6N4LROVSQE Retired Military

            Dont forget the dot com boom.

          • http://wizbangblog.com/author/rodney-graves/ Rodney G. Graves

             What of the dot com boom?  It burst and the housing market did not.

          • http://pulse.yahoo.com/_W6UJJOM4PP4XLSBG6N4LROVSQE Retired Military

            I believe that it helped along the houseing market to some degree.  That and the proliferation of the internet made it easier for people to see what the “joneses” had and served to push the status symbol of the bigger house, bigger car, nicest property etc.  Prior to the internet who knew what a Star’s house looked like?

          • herddog505

            I wonder if the “easy money” thing is the most important factor.  It was wonderful while it was happening: people had plenty of money to buy houses, start or expand businesses, etc. because Greenspan was keeping rates low.  Was it a case of the bill eventually coming due, and being a doozy when it did?  In other words, if one had to pick the major cause, is it fed policy or HUD policy?

          • GarandFan

             A bit of both.  Fueled by the government GSE’s – Fannie and Freddie.  Remember the “wink-wink, nudge-nudge” loans?  You want to borrow $350K for a home?  You are a janitor and earn $150K a year?  Okay, we’ll loan you the money.  Why?  Because a certain portion will fail.  But they ALL won’t fail.  So “it averages out”.  Only in reality, it didn’t and a lot did fail.   

          • jim_m

             I think it is.  Look at the higher education bubble.  The government made it easier to get student loans for ever increasing amounts of money.  The universities responded by saying,”How do we get a bigger share of the pie?” 

            The universities cranked up their tuitions in response o the easy access to money that students had. 

            When money supply increases in the marketplace the price of goods increases to take advantage of the fact. 

            Demand didn’t change.  We still had the same number of potential students, but he access to money did change and that meant that more students could pay up.   The universities did use some of hat extra tuition to roll back into grants for some students, but judging by the expansion of university endowments I would say that only a small fraction of it went to help the people who really needed it.

          • herddog505

            jim_m – When money supply increases in the marketplace the price of goods increases to take advantage of the fact. 

            I think that hits the nail on the head.  But DID the US money supply dramatically increase in the period when the price of housing rose so dramatically?  Or did the easing of credit have the effect of such a dramatic increase in money supply?

            Forgive me if I seem dull, but I’m not an economist yet I’m intrigued by the charts.  SOMETHING happened, and I suspect that that “something” set us up for the clobbering we took in ’08.

  • jim_m

    Imagine in an economy with the lowest labor participation rate in over 30 years, double digit unemployment (U6), slow wage growth and looming inflation (by some measures already in the double digits as well), we can’t find people willing to stick their neck out and borrow a sum so large they will have to take 30 years to pay it off.

    Thank goodness the stimulus worked (snicker).

    The housing market will recover when the broader job market stabilizes and begins to recover.  Not before.

    • herddog505

      Oh, but the stimulus DID work!  And I can prove it.

      Did the US economy totally collapse?  Did the world come to an end?  Did aliens from planet Zokbar-3 invade?  Are we driving around a post-apocalyptic desert with collanders strapped to our faces?  No?

      Well, what more proof do you need???

      /sarc

      This isn’t actually that far removed from how Barry and his brain-dead followers rationalize the “success” of porkulus: “It could have been worse!”

  • http://profiles.yahoo.com/u/EU5DQWQTTHTPO4A4ZYSL3AAV2U Adjoran

    The Bank of Japan tried an almost identical strategy to deal with their own banking crisis beginning in the late ’80s. This was back at a time when the idiots who are now in charge were whining that “Japan is buying America!”  ‘member, kids?  Good times, good times.

    Interest rates near zero, government stimulus, etc. led to what is now known as The Lost Decade of negligible growth.  Their problem, as is ours now, was not the financial crisis or the recession it triggered.  Recessions are temporary setbacks that perform a very useful function for a healthy economy by squeezing out the excesses and the marginally productive uses of resources.  This means some dislocation of capital and people, but it is a self-correcting market in the longer term.

    What we have tried, like Japan, is to get through the recession without the pain.  Two years of unemployment benefits, record food stamps, multiple mortgage restructurings, bailouts, and the like minimized the pain for some, but also prevented the realignment needed for future robust growth.

    The pain will still come – we will have to dispense with hundreds of thousands of federal civilian employees to deal with the budget, for example – and the next President will also be a one-termer because he will get the blame for the pain Obama postponed, but in the long run it will be for the best for the country.

    • http://wizbangblog.com/author/rodney-graves/ Rodney G. Graves

       You are quite possibly right about the consequences of the pain of changing course, but continuing as we are leads only to ruin.

      The Republic simply cannot afford four more years of this reckless and feckless mal-Administration.

      • herddog505

        As much as I despise Barry, it ain’t just him.  He’s a symptom, not the disease.  Too many politicians have discovered that the easiest path the election is to give people stuff.  They and their enablers in MiniTru have even enobled this blatant grasping with terms like “fairness” and “social safety net” and “compassion”.  It’s a nice way to say, “We’re gonna rob Peter to pay Paul so that Paul will keep electing us.”

        Barry simply doesn’t even bother to pretend that he’s doing what they all do, on steroids.

  • http://otisthehand.blogspot.com/ OTIS the hand

    Low interest rates aren’t working because the only people that banks are willing to loan money to are those who don’t need it.

  • Commander_Chico

    Legal uncertainty over title, foreclosures and unrecorded mortgage assignments within MERS has led to a huge inventory of properties which need legal action to clear title.  This is a big drag on the market.