Wednesday, March 20, 2013

The reality behind realty

Now we know the truth behind the rise in home prices. Bloomberg has just come out with the story on the continued rise in US home prices. It's the same group of people blowing bubbles both in the stock markets and in the real estate markets. Although it appears that Bernanke is feeding the frenzy with his continued $85 billion dollars of monthly QE, his QE actually is not leading to new net lending by Fannie Mac or Freddie Mac. It's the investment firms that are moving money from other asset classes into home investment. As the winners shift money, the losers wonder bewilderingly why, as they get hammered by unemployment, their former homes are rising in value.

The above chart taken from the same Bloomberg article which shows new purchase mortgages up to the 3rd quarter of 2012, does not jibe with the rising money pouring into real estate. That's because the massive money is coming from the big investors who are hoarding homes for future speculation.

To further corroborate the disconnect between the two worlds of speculation and real ownership, the above chart from the AEI website shows that homeownership rate has been free-falling from a high of 69.4% in the 2nd quarter of 2004 to a low of 65.3% in the 3rd quarter of 2012. The latest reading for the 4th quarter of 2012 is still stuck at 65.3%. This level was last registered in the 1st quarter of 1996. If the rising home prices do not match reality on the ground, the only eventual outcome is a nasty implosion. As usual, the biggest losers would be the individual buyers who are always late into the game. They'd be caught napping with their pricey mortgages tagged to fast eroding home value.

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