Un-Real Estate
Realtors and sellers are ecstatic at the recent 'mini-boom' in the Denver real estate market. Mortgage brokers are, too. I met a mortgage guy at a networking event, and he said he's never been busier.
Inventories are down... home values are up... and homes don't stay on the market very long. From talking with a local realtor, many listings have multiple offers. So... are happy days here again to stay... or is it one last boom before the extended bust?
I've always been good at calling longer-term trends, but not so good at predicting events in the short-term. While I'm doubtful that this 'mini-boom' trend has long-term "legs," we could see this trend sustained for longer than I think. I've been amazed at the ability of the Federal Reserve, banks and other lenders to keep the credit party going as long as they did (through about 2007-8).
The realtor I talked to was excited that mortgage rates were going to stay low through 2014. While that's good for people who want to buy a home, that's not-so-good for Americans in general. That's because Benny and the Feds have been printing money out of thin air to buy the longer-term bonds (which mortgage rates are based on), which keeps the rates low.
If the bond market depended upon individual, institutional and government buyers of American debt, I think we'd easily see high single-digit to lower double-digit interest rates in no time. The Chinese are now net sellers of American debt, and almost all governments and bond buyers around the world realize that the US Economic Emperor has no clothes... is highly indebted... and will never pay this massive amount of debt back in full.
They see that the Federal Reserve is monetizing our debt in order to keep the credit party going. The Fed is doing exactly what the EU is doing: Trying to "paper over" and solve the problem of too much debt... by creating even more debt. Brilliant!
I don't know how long this 'mini-boom' in real estate will last. I do know that with the current fundamentals, it's not sustainable in the long run. Prices don't go up forever, and trees don't grow to the sky.
Now, I'm not trying to rain on anyone's parade. However, my long-term economic predictions and hunches are pretty accurate most of the time. I call it like I see it, and I can't ignore the glaring fundamentals in front of my face (i.e., a massive amount of debt in the US - and around the world - that will have to be cleared out before we can see true, sustainable economic growth again).
This won't be a quick or easy process. I believe it will take at least 5-10 years (depending on how much the government intervenes in the marketplace) for this to occur. If the government takes a hands-off approach, it'll be quicker. But we know that government can't leave well enough alone, and they'll keep trying to "fix" things and bring Happy Days back to the economy. So it'll probably take closer to a decade - and maybe longer -to work through all the bad debt and see something that resembles a recovery.
However, this time it's different. The US isn't the only economic superpower in the world. Although their economy has been overinflated because of speculation and easy money, China is the world's largest net creditor. That means more countries and institutions owe them more money than anyone on the planet. The United State is the biggest debtor nation - we owe more folks more money than anyone on the planet.
That's why I have a bearish financial outlook going forward. The US has been able to whistle past the proverbial graveyard - and get away with this insane borrowing and spending spree - because the US Dollar was (and still is, at least for now) the world's reserve currency. I don't believe it will stay the world's reserve currency for much longer. When that happens, Americans will feel a lot of pain from reduced purchasing power, real estate and stock values.
In summary, enjoy the real estate party while it lasts. I could be wrong, but I don't believe we'll see another 'mini-boom' in housing for a long time.
Inventories are down... home values are up... and homes don't stay on the market very long. From talking with a local realtor, many listings have multiple offers. So... are happy days here again to stay... or is it one last boom before the extended bust?
I've always been good at calling longer-term trends, but not so good at predicting events in the short-term. While I'm doubtful that this 'mini-boom' trend has long-term "legs," we could see this trend sustained for longer than I think. I've been amazed at the ability of the Federal Reserve, banks and other lenders to keep the credit party going as long as they did (through about 2007-8).
The realtor I talked to was excited that mortgage rates were going to stay low through 2014. While that's good for people who want to buy a home, that's not-so-good for Americans in general. That's because Benny and the Feds have been printing money out of thin air to buy the longer-term bonds (which mortgage rates are based on), which keeps the rates low.
If the bond market depended upon individual, institutional and government buyers of American debt, I think we'd easily see high single-digit to lower double-digit interest rates in no time. The Chinese are now net sellers of American debt, and almost all governments and bond buyers around the world realize that the US Economic Emperor has no clothes... is highly indebted... and will never pay this massive amount of debt back in full.
They see that the Federal Reserve is monetizing our debt in order to keep the credit party going. The Fed is doing exactly what the EU is doing: Trying to "paper over" and solve the problem of too much debt... by creating even more debt. Brilliant!
I don't know how long this 'mini-boom' in real estate will last. I do know that with the current fundamentals, it's not sustainable in the long run. Prices don't go up forever, and trees don't grow to the sky.
Now, I'm not trying to rain on anyone's parade. However, my long-term economic predictions and hunches are pretty accurate most of the time. I call it like I see it, and I can't ignore the glaring fundamentals in front of my face (i.e., a massive amount of debt in the US - and around the world - that will have to be cleared out before we can see true, sustainable economic growth again).
This won't be a quick or easy process. I believe it will take at least 5-10 years (depending on how much the government intervenes in the marketplace) for this to occur. If the government takes a hands-off approach, it'll be quicker. But we know that government can't leave well enough alone, and they'll keep trying to "fix" things and bring Happy Days back to the economy. So it'll probably take closer to a decade - and maybe longer -to work through all the bad debt and see something that resembles a recovery.
However, this time it's different. The US isn't the only economic superpower in the world. Although their economy has been overinflated because of speculation and easy money, China is the world's largest net creditor. That means more countries and institutions owe them more money than anyone on the planet. The United State is the biggest debtor nation - we owe more folks more money than anyone on the planet.
That's why I have a bearish financial outlook going forward. The US has been able to whistle past the proverbial graveyard - and get away with this insane borrowing and spending spree - because the US Dollar was (and still is, at least for now) the world's reserve currency. I don't believe it will stay the world's reserve currency for much longer. When that happens, Americans will feel a lot of pain from reduced purchasing power, real estate and stock values.
In summary, enjoy the real estate party while it lasts. I could be wrong, but I don't believe we'll see another 'mini-boom' in housing for a long time.
Labels: Federal Reserve, mortgage, residential real estate, speculation
posted by Brian Ochsner | 8:50 AM
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