Authored by Mike Shedlock via MishTalk.com,
The Fed has grossly distorted the housing market and no fix is in sight. A couple of images will explain...
Chart data from Case-Shiller, mortgage calculation based on Fannie Mae 30-year mortgage rates, chart by Mish
Home Price Calculation Notes
The above chart represents the mortgage payment of the same house as the lead chart reflecting the changing price and interest rate over time.
Mortgage rates are slightly higher in practice.
Also, prices do not include property taxes or insurance.
This is a mess entirely of the Fed’s making. And it’s what happens when the Fed, and economists in general do not count home prices as inflation.
Home prices are not directly in the CPI or PCE. The latter is the Fed’s preferred measure of inflation.
Economists consider home prices a capital expense not a consumer expense. The problem is simple: Inflation is not just a consumer price concern!
The Fed ignored obvious inflation in the Great Recession and did so again in the Covid recession.
Existing-home sales declined 5.4 percent in June. It was the 23rd decline in 29 months. But the median price hit a new record.
For Discussion, please see Existing Home Sales Drop 5.4 Percent But Median Price Hits New Record
Existing-home sales are about where they were in December 1995 and May 1979!
Only price-insensitive buyers, the newly rich, or those who just sold their previous house, can afford to buy.
All-cash sales accounted for 28% of purchase transactions in June.
Existing homeowners who refinanced near or perhaps even under 3.0 percent have extra money in their pocket every month to spend. And they do.
Those who spend every penny then have an unexpected expense or a big rent increase are in trouble.
The group of people who were doing OK but now aren’t is expanding. Also the unemployment rate is rising and small business employment is in a serious nose dive.
Data from ADP, chart by Mish
For discussion, please see Small Business Employment Growth Is Now Negative (and What It Means)
ADP data shows year-over-year payroll growth is negative 88,000 for small corporations sized 20-49. Trends are negative in all but very large corporations.
On July 26, I commented Expect the BLS to Revise Job Growth Down by 730,000 in 2023, More This Year
At the heart of these revisions is a horribly flawed birth-death model used by the BLS. My calculation closely matches an estimate by Bloomberg’s chief Economist.
In addition to the birth-death model, or perhaps explaining the birth-death model errors, small business employment is declining fast.
On August 2, I commented Unemployment Rate Jumps, Jobs Rise Only 114,000 with More Negative Revisions
The headline jobs number was much weaker than the consensus estimate of 180,000 and the unemployment rate rose 0.2 percentage points.
On July 8 I commented Weak Data Says a Recession Has Already Started, Let’s Now Discuss When
I did an update on August 2 using a tighter trigger.
Also on August 2, I commented The McKelvey (Sahm) Unemployment Rate Recession Rule Just Triggered
Recession with rising unemployment rates and 15,000 Layoffs at Intel is not the best environment to be buying a house even if mortgage rates have declined.