The Fed s comments are careful to avoid sending panic but the statistics are clear. The rent is too damn high! Rents are out of step with prices. US prices are not based on fundamentals but instead are based on emotions and fears. By the way gas prices are up world wide, not just in the US. so are home prices, 11 other countries are on bubble watch. . it is also now clear, that the stimulus giveaways started by selfish politicians bent on getting re elected only threw more gas on inflation as disposable income was artificially inflated. Transitory disposable income along with low interest rates and huge asset purchases by the Fed really set home prices on fire. The conclusion is that the correction will not be as bad as 2007 because “ consumers have better balance sheets and the underwriting was better this time around” meaning the absence of subprime loans and underwriting. Wrong. The vast majority of defaulted loans were not subprime. Low down payment FHA and Conventional loans went bad in bigger numbers. And many were strategic defaults. Meaning people let their house go even when they could afford to pay. Their motivation was to get out from an underwater equity position, even if they could afford the payment.
New home sales drop. Rates are around 5.50% for a 30 year fixed. Highest in 13 years. Rates have increased 200 basis points since April, ouch. Come on baby, burst that bubble. Significant evidence in the latest data that the Fed is having success in cooling down the market. We seem to be turning that corner, getting to where the Fed wants us. Just as we enter what is traditionally the best time in real estate sales, April to September. New homes usually sell 6-9 months before they are completed. There is already anecdotal evidence of buyers walking away from deposits on new homes, not in California …yet. I’m watching it closely. the money quote, “ A sharp downturn in real estate investment is now underway”- Doug Duncan, chief economist at Fannie Mae. Big time layoffs in the banking industry the last two weeks, more coming.