By Mark Hanson Of M Hanson Advisers
Bottom Line: House prices and end-user, shelter-buyer fundamentals have never been further apart in key, economically significant cities.
The two charts presented in this note highlight just how diverged house prices have become from end-user, shelter-buyer, employment and income fundamentals in the most populated, economically significant US cities.
I maintain that House prices are always drawn to the purchasing power — or, economic strength — of the end-user, shelter-buyer cohort, as the dominant, permanent demand driver.
But, sometimes House prices, like other asset prices, go through periods of separation from end-user, shelter-buyer cohort fundamentals. And based on the most recent data of incomes, mortgage rates, and House prices in key cities around the nation, house prices and end-user fundamentals have never been further apart. Even in Bubble 1.0, the divergence wasn’t this bad because exotic loans, which were the incremental driver of House prices, made for legitimately low monthly payments.
Some positive or negative divergences can be solved through lots of time, as the economy shrinks or grows. But, over the past several years, as the economy barely grew each year, house prices soared at a pace that exceeded Bubble 1.0 in most regions.
As such, it’s reasonable to assume that the massive divergence in most key metros has been driven largely from the three things that just so happen to be present in all bubbles throughout history; SPECULATION, LEVERAGE, AND EASING CREDIT STANDARDS, regardless if on an individual, corporate, financial market, or Gov’t level.
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THINK ABOUT IT THIS WAY…
If everybody had to buy a house the exact same way — say, with a 30-year fixed, fully-documented mortgage and 20% down — HOUSE PRICES could never detach from the end-user, shelter-buyer employment and income fundamentals for a particular region. In other words, HOUSE PRICES would be attached to and track these fundamentals, perfectly.
But, in times, of increased speculation, leverage, and declining credit standards, the end-user, shelter-buyer employment and income fundamentals get drowned-out and asset prices attach to the incremental spec and high-leverage drivers. How long and far asset prices are driven by the incremental, spec and leverage drivers determines the scope of the divergence and ultimately the possible downside risk in an asset class.
lot more,,,,,,,,,,,
http://www.zerohedge.com/news/2017-08-21/house-price-bubbles-20-pictures
Realist - Everybody in America is soft, and hates conflict. The cure for this, both in politics and social life, is the same -- hardihood. Give them raw truth.
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