Home prices jump as Washington eyes the effective nationalization of second mortgages.
— Peter St Onge, Ph.D. (@profstonge) June 27, 2024
For 50 years Washington has done everything to pump house prices. They’ve finally done it, pricing the young and the working class into renting for life.
As for the millions waiting for the… pic.twitter.com/bsAVoDlazL
New home sales are tumbling yet home prices just hit a fresh all-time record, pretty much on brand for this miracle economy of ours where nothing is selling but it's all really expensive. The numbers come from the National Association of Realtors who report that the median existing home price in May was a record $419,000, up nearly 6% from last year. Meanwhile, sales of existing homes plunged to just 4.1 million; that's down 6% on the quarter and down 40% since Joe Biden took office. What's crashing the number of sales, of course, is interest rates, which at 7.5% are putting houses out of reach you need to make six figures to qualify for a starter home and your mortgage will be half your income. What makes this interesting is that crashing sales were supposed to bring prices back to earth after the pandemic bubble. They have not for the simple reason that rates went up so fast that it's locked people in. They can't afford a replacement house; after all, maybe your condo went up 40%, but that starter house also went up 40%. So even with the gains you cannot afford to upgrade at 7.5% mortgage unless you are retiring and moving to Costa Rica. So I mentioned recent videos, this is all done a number on the young and working class. It means pretty much the only buyers are people who need to: they got a job at a new city, or maybe they lost their job and are moving down to renting. For everybody else, young families, empty nesters, they are locked in.
1:33. Meanwhile, of course, inflation keeps marching up driving up house prices. It's a roughly centuries-long trend that houses move up almost in lockstep with inflation. That means for all those people waiting for the pandemic housing bubble to burst, it may never burst. Inflation will just push the prices up to meet it. In fact, house prices could take another jump, because ZeroHedge reports that government-owned mortgage bundler Freddie Mac, which already owes roughly three trillion dollars worth of mortgages, just applied to deal in second mortgages. Now, a second mortgage is when you take a fresh loan out to take money out of your house. The problem is that this effectively turns a house into a credit card; in fact, one that is government-subsidized by Freddie Mac. That does two things: that drives house prices even higher because a credit card is worth more than frozen equity; worse, it encourages people to drain every last dime out of their house. That leaves them right on the edge of default when a recession or just a layoff does hit them. We saw that in 2008 when millions of owners bailed on their houses because they owed more than it was worth. With subsidized second mortgages, if you are smart you should owe more than your house is worth; it's a cheap loan.
2:47. For 50 years, Washington has done everything possible to pump up house prices as a kind of upper-middle-class welfare scheme that buys votes, pays the affluent, but fleeces the have-nots. Now we've got a world of rich boomers stepping over the young, who are not only giving up on starting a family, they're losing faith in the entire system, doom spending their way to oblivion. In terms of what is next, if you own a house here comes another jackpot; if not, it is time to start driving for Uber.
Read the whole article with charts and all the gory details at profstonge.com.
