Housing Market on Shaky Ground (Video)
While few are as blunt as Peter Schiff in warning of another bubble in real estate, mainstream analysts are starting to worry that the US housing market isn’t as strong as many believe. Peter warns that rising home prices are a product of extremely low interest rates suppressed by the Federal Reserve. Robert Shiller, Nobel Laureate economist, seems to agree in a recent interview on CNBC:
There’s also the worry that the very low interest rates that we’ve had, with the 10-year just above 2%. That has also been driving this [housing] market. That is fragile… I’m not calling a turning point yet, but I feel a little bit of anxiety about the market.”
Shiller plays it cool, but admits that he thinks the market is looking like a bubble in San Francisco and possibly Miami:
The two best cities on this 12-month basis are Miami and San Francisco. There’s a pattern here I think. It is glamor cities. Beautiful places that have been the most bubbly in the past. I don’t know exactly what accounts for these big price increases in those cities, but I suspect it has something to do with their history of speculative bias. I don’t think of it as a good sign. It’s getting a little too bubbly in San Francisco…”
The Wall Street Journal is also reporting on a slow-down in the housing market. In an article published yesterday, John Carney writes, “The US housing market has gone wobbly.” He continues:
Sales of new homes in November were down 1.6% from a year ago, according to Commerce Department data last week. Existing-home sales for that month were down 6.1%. The monthly survey of U.S. home builders from housing-research firm John Burns Real Estate Consulting Inc. found the per-community sales pace shrank by an average of 20% in November, year over year.
“This slowdown may not be fully evident in the Case-Shiller/S&P Home Price Index figures due Tuesday. Those have a three-month lag; the newest report will reflect home-price changes in October. Even so, the trend hasn’t been promising. September’s report showed annual home-price growth in the 20-city index slowing 0.7 percentage points to 4.9%. That was the index’s first reading below 5% since 2012.”
As Peter has been pointing out for months, we’re starting to see the same cognitive dissonance in the media that was present in 2006 and 2007 just before the financial crisis. The United States is supposedly in the midst of an economic recovery that will allow the Fed to raise interest rates in the coming months. But this narrative ignores a key question. If the housing market is looking “wobbly” with these extremely low interest rates, what do upbeat forecasters think will happen to real estate when rates go up?
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