skip to Main Content

Sooner Or Later, Something Had To Give, And It Has

A weekend topic starting with the Bipartisan Press. “A few months ago, the Wall Street Journal published an article titled ‘The U.S. Housing Market Boom is Coming to an End, Starting in Dallas.’ And yes, we have all heard about the rising interest rates and housing prices are to blame. There is another factor that is hurting the housing market that has not been focused on and that is Washington D.C.”

“Those of us in the trenches, get first-hand reactions from potential buyers. With consumer confidence at an all-time high, why the hesitation? This is a mental recession, one that is being created because of the dysfunction in Washington D.C.”

“On a positive note, we are beginning to understand the phenomenon of perceiving market drops like the one in 2008 not as a disaster but as a cycle, with opportunities built in. We are becoming accustomed to seeing the housing market act like the stock market. The first time the Dow dropped 300 points, it was headline news. Now, we don’t throw up our hands in despair when we see swings.”

“We don’t see them as devastating crashes any longer. We’re seeing our economy – including the housing market – behave like the commodities market, just not as severe: rallying and dropping, based on supply and demand.”

“We are learning from our new norm, accepting it, and acting on it. Washington DC’s behavior is not the downfall of our economy. That’s why I feel confident that the current housing slump will be past history – sooner than expected, I predict. And the folks who bought homes in 2019 will be bragging about it in 2022. Not only will they profit from their buys, but they’ll also be looked upon as the smart people in real estate.”

From Kevin Erdmann. “One of the factors that played a role in the Great Recession was the excessive amount of debt-fueled consumption that led up to it. Lending terms were generous at the time, and home prices were far above historical norms. Homeowners were able to tap into that growing home equity.”

“But in the book Shut Out and elsewhere, I have presented evidence that high home prices before the financial crisis were largely owing to a lack of supply. A lack of supply leads to rising rents. Credit markets may have facilitated rising prices, but prices were largely justified by the rising rental values in the most expensive cities: Boston, Los Angeles, New York, San Diego, and San Francisco. I call these the Closed Access cities.”

“This means that a collapse in prices was not inevitable. But more importantly, this means that calls for tighter monetary policy during the boom were calamitous. Loose monetary policy has been widely blamed for high home prices and for the debt-fueled consumption that they funded. Critics, and even Federal Reserve policymakers, generally agree that monetary policy should have been tightened sooner.”

“But this is the wrong conclusion. In fact, monetary policy was powerless to counteract the debt-fueled consumption of the boom period, and the bust was only inevitable because the Fed tried to solve a problem that it could not functionally solve with tighter monetary policy.”

“As in 2005, the primary stresses that characterize the American economy do not have a monetary source or solution, but mistaken monetary attempts at solutions are capable of adding to those stresses. Certainly, there is no reason to tighten policy today as a reaction to high home prices.”

“Looser credit standards would allow low-tier home prices to rise back to a level reflecting the norms of decades of precrisis, liquid housing markets. Loosening credit standards would be inflationary, but to the extent that low-tier homeowners could make it through the crisis without being foreclosed on and without selling their undervalued homes, the re-attained wealth of a normalized lending market would be highly progressive.”

“It would be progressive because (1) it would allow home equity of low-tier homes to recover, and (2) recovery in those markets would lead to recovered rates of building, adding new supply that would reduce rents for households that rent. The net effects on inflation would be mixed. New credit growth would be inflationary, but more housing supply would be disinflationary, creating an economic situation similar to that in 2005. However monetary policy responds, the key is to avoid triggering a contraction in new housing supply.”

From Aaron Layman. “Spring is in the air, but temper your enthusiasm. As February’s home sales numbers confirmed, the North Texas real estate market correction that began last year is still in play. The local housing market is still trying to sort through the distortions caused by the Federal Reserve’s interventions in the markets.”

“Dallas-Fort Worth home sales are still struggling to regain their footing, and home prices continue to roll over at the margins from the top down. What we are experiencing was years in the making. As I have detailed in numerous articles, the North Texas real estate market has the Fed’s fingerprints all over it.”

“While the averages paint a picture that the U.S. economy is still performing relatively well, the averages are misleading because the Fed’s ‘wealth effect’ has not translated into shared prosperity. In fact, it’s been quite the opposite. The U.S. housing market is Exhibit A for the wealth inequality facilitated by the Federal Reserve’s trickle-down monetary policy.”

“In the summer of 2008, the average price of a home in Denton was roughly $158,000. In the summer of 2018, the average price of Denton homes was more than $275,000. That’s a 75 percent increase. During the same time frame, median and average household incomes in Denton haven’t come close to matching that kind of growth. Sooner or later, something had to give, and it has.”

“Now that the local housing market is cooling, we are seeing a tug-of-war between buyers and sellers. Many sellers are still holding out for prices that seemed reasonable a year or two ago when the market was red-hot and multiple offers or bidding wars were the norm. Homebuyers, particularly debt-strapped millennials, are increasingly looking for value where they can find it. Many are just choosing to rent.”

“These imbalances will continue to pose headwinds for the housing market until the larger economic cycle is allowed to function as intended. The longer the Fed attempts to thwart market forces, the larger the imbalances and distortions become. For better or worse, the Denton area’s real estate market is still captive to Federal Reserve policy.”

This Post Has 54 Comments
  1. ‘In the summer of 2008, the average price of a home in Denton was roughly $158,000. In the summer of 2018, the average price of Denton homes was more than $275,000. That’s a 75 percent increase. During the same time frame, median and average household incomes in Denton haven’t come close to matching that kind of growth’

    Wasn’t a poster just saying a 50% drop was absurd?

        1. I have seen occasional FB real estate listings where they endlessly move the price up and down over months or even years without attracting a buyer.

          However, I don’t recall ever seeing a sale following an upward move in the ask price.

      1. They’re sure to sell very quickly if they keep regularly dropping the asking price in 20% increments several more times in the coming months.

    1. That was me. And it is absurd. Come to think of it, 50% price drops since 2012 – which is what the article says – is absurd squared.

      1. Seems to be wishful thinking on your part, because you own a house. There were MANY places where prices dropped well over 50% last time, and given that prices bubbled even higher this time, I see no reason that some areas won’t see declines of 60% or more.

  2. “We are learning from our new norm, accepting it, and acting on it. Washington DC’s behavior is not the downfall of our economy. That’s why I feel confident that the current housing slump will be past history – sooner than expected, I predict.

    What a crock. While it’s true that the vast majority of the sheeple are “accepting” the new norm dictated to them by the globalists and its MSM propagandists, millions of the awake and aware are seeing right through the “Everything is Awesome – Buy Moar Stawks!” lies and BS they’re being fed and feel a deep sense of unease about where the country is headed. And they’re balking about being herded onto the incorporated neoliberal plantation and a lifetime of debt serfdom like lambs to the slaughter. Which is why the Oligopoly and its creepy tech company accomplices like Facebook, YouTube, and Google are going all-out to shut down any challenges to The Narrative so they can keep the sheeple grazing obliviously on the green shoots sprouting from the bullshit the MSM flings across their pasture.

    1. “shut down any challenges to The Narrative”

      LOLZ anyone still using social media apps in 2019 (the current year).

      “In some buildings, there are more ‘Black Lives Matter’ posters than there are actual black people. Facebook can’t claim that it is connecting communities if those communities aren’t represented proportionately in its staffing.”

  3. I think the article’s title sums up the situation nicely. Let’s ascribe blame where it belongs. I Couldn’t have said it better myself.

    “The Federal Reserve has made another fine mess in the housing market”
    By Aaron Layman Mar 20, 2019 Updated Mar 20, 2019

    DFW is a snapshot of the U.S. market as a whole, IMHO.

    Oliver Hardy : “Well, here’s another nice mess you’ve gotten me into.”

  4. 22151 boots
    House near me has heard coming through. $10% premium over the last sale across the street. Busy road 😁😁 remodeled w candy coating

    1. The homeless problem can be largely attributed to the Federal Reserve’s housing bubble. All of the once affordable housing options were bid up in price and moved out of reach of those who needed them.

      The drug problems can be attributed in great part to the Federal Reserve, too, because their “no banker left behind” policies have absolutely destroyed the poor and middle class in favor of the moneyed set. And, they are hell bent on continuing the very same policies, as evidenced by their most recent comments and actions.

      We are in an absolute crisis situation in this country when it comes to the cost of living, and the only person saying anything about it is a young Socialist with scary solutions. The United States = OVER.

  5. “folks who bought homes in 2019 will be bragging about it in 2022. Not only will they profit from their buys, but they’ll also be looked upon as the smart people in real estate”

    Who writes this horsesh*t? Oh yeah, REALTOR does…

    1. “That’s why I feel confident that the current housing slump will be past history – sooner than expected, I predict. And the folks who bought homes in 2019 will be bragging about it in 2022. Not only will they profit from their buys, but they’ll also be looked upon as the smart people in real estate.”

      Never do interviews under the influence of PCP.

  6. “2019 will be bragging about it in 2022. Not only will they profit from their buys, but they’ll also be looked upon as the smart people in real estate.”


    1. By 2022, Real Journalists let go from failing newspapers whose former readership refused to keep paying for DNC talking points and corporatist propaganda are going to be battling FBs who bought homes in 2019 for the gleanings of whatever food bank they’re both frequenting.

  7. The car revolution is about to happen, cars will become simpler and more reliable, car maufacturer margins will get squeezed and soon hundreds of thousands of jobs will be lost.

    Will be be interesting to see how that ripples through the real estate market.

    1. I’m just wondering when the heck States will ever get rid of the laws protecting car dealers. Archaic leftovers from the days when those were family-owned businesses. Dealerships are pretty much all owned by big corporations now.

  8. “And the folks who bought homes in 2019 will be bragging about it in 2022. Not only will they profit from their buys, but they’ll also be looked upon as the smart people in real estate.”

    I predict that by 2022, those who bought homes in 2019, along with the writer of this claptrap, will be enjoying the world’s largest ever crow banquet in history.

  9. Does it seem like the financial journalists are overworrying recent developments in government bond yields? It’s almost like they just noticed a large asteroid that is on track to collide with the earth.

    1. Do you think central bankers realized they were lighting the fuse for a massive government bond rally?

      Bond Yields Around the World Are Tumbling to New Lows
      By Ruth Carson and Masaki Kondo
      March 21, 2019, 10:25 PM PDT
      Updated on March 22, 2019, 7:44 AM PDT
      – Poor European manufacturing data drags bund yields below zero
      – Ten-year U.S. Treasury yield drops below three-month rate

      Investors cramming into government bonds are sending yields around the world to multi-year lows as they dash for protection from dimming growth and seek to benefit from more accommodative central banks.

      New Yorkers were still wrapping up the previous day’s business when the first of Friday’s milestones was reached, as yields on New Zealand’s bonds tumbled to a record. Japanese markets swiftly followed, with the 10-year yield sinking to a two-year low of minus 0.08%. Another wretched batch of European data drove German rates below zero for the first time since 2016 before disappointing U.S. PMIs delivered the sucker punch, pushing the yield on 10-year Treasuries below the three-month bill rate.

      This will be the year that we say: ‘Really, bond yields have plunged this much!?’” said Akira Takei, a global fixed-income fund manager in Tokyo at Asset Management One, which oversees more than $500 billion. Central banks in the U.S., Australia and New Zealand will probably all cut interest rates this year, he said.

    2. Despite the U.S. stock market’s stellar performance since Christmas Eve 2018, plus the Fed’s cancellation of rate normalization plans, we haven’t run out of gloomy prognosticators.

      ‘Inverted yield curve’ a signal of looming financial collapse, expert warns
      March 23, 201912:51pm
      The truth about the cost of living in Australia
      Alexis Carey

      A once-in-a-generation financial disaster is looming — and everyday Aussies will be caught up in the fiasco, an Australian economist has warned.

      Former Coalition policy adviser John Adams made the grim prediction today after the US bond market experienced an inversion of the “one year to 10 year” yield curve.

      Mr Adams said that inversion followed two or more quarters of negative economic growth — the most telling sign of an impending US recession.

      And he told it was not a question of if Australia would be affected — but rather when and to what extent.

      The yield curve is inverted when the yield or interest rate on short-term bonds is higher than that on long-term.

      In other words, in this case it means the demand for short-term, one-year US government treasury bonds has dropped while demand for longer-term bonds has increased — which means it’s harder for institutions to lend profitably, which causes a credit squeeze.

      Mr Adams said an inversion of the “one year to 10 year” yield curve had been the most accurate prediction of a coming recession since the 1960s — a phenomenon also recognised by the US Federal Reserve.

      Since 1955, it has occurred in the lead-up to nine economic recessions and has only produced one false-positive reading in September 1965.

      On Friday, it flipped again. A Treasury bill that matures in three months is yielding 2.46 per cent — 0.03 percentage points more than the yield on a Treasury that matures in 10 years.

      Mr Adams said that meant the official countdown to “economic Armageddon” had now begun, with a US recession, based on the historical experience, likely to commence in the next three to 27 months.

      He said a recession in the US was likely to have global consequences as America still had the world’s biggest economy — and that the impact on Australia would depend on government decisions.

      In a previous interview, Mr Adams said in the event of a crisis, everyday Aussies would likely experience severe financial difficulty given that many Australians hold “excessive debts” and would likely suffer “loss of income and unemployment” which would potentially lead to a spike in mental health, addiction and relationship problems for many people.

      But he said there were things Australians could do to prepare for a collapse. These include researching previous economic crises, managing cash flow, reducing debt, holding onto “good” money that will retain its purchasing power, diversify income sources and skill set, improve personal and home skills, strengthen relationships, become as physically and spiritually healthy as possible and engage with politics to fight for good public policy.
      The day of reckoning is coming. Are you ready?

    3. Markets
      ‘Never Short the Bund’: How Investors Have Learned the Hard Way
      By John Ainger
      March 22, 2019, 4:43 AM PDT
      Updated on March 22, 2019, 11:00 PM PDT
      – Even zero-percent yields offer reasons to buy German debt
      – U.S.-based investors seen as earning 3 percent yield on bunds

      Brian Tomlinson, a money manager at Allianz Global Investors, has a sticker on his desk that says “Never Short the Bund.” It’s something he says still applies after yields dropped below zero percent for the first time in over two years.

      While negative yields on paper suggest that investors lose money just by holding German bonds, there are still opportunities for a canny investor to make a buck. U.S. money managers still get a pickup of around 3 percent on a currency-hedged basis, 60 basis points more than holding U.S. 10-year Treasuries. And, should Europe’s economic woes persist, buyers could also be looking at further price gains.

    4. Business
      Treasuries Buying Wave Triggers First Curve Inversion Since 2007
      By Emily Barrett
      and Katherine Greifeld
      March 22, 2019, 6:49 AM PDT
      Updated on March 22, 2019, 10:17 AM PDT
      – Gap between 3-month and 10-year U.S. yields vanishes Friday
      – Move follows Fed policy shift, gloomier economic signs

      The Treasury yield curve inverted for the first time since the last crisis Friday, triggering the first reliable market signal of an impending recession and rate-cutting cycle.

      The gap between the three-month and 10-year yields vanished as a surge of buying pushed the latter to a 14-month low of 2.416 percent. Inversion is considered a reliable harbinger of recession in the U.S., within roughly the next 18 months.

      Demand for government bonds gained momentum Wednesday, when U.S. central bank policy makers lowered both their growth projections and their interest-rate outlook. The majority of officials now envisages no hikes this year, down from a median call of two at their December meeting. Traders took that dovish shift as their cue to dig into positions for a Fed easing cycle, pricing in a cut by the end of 2020 and a one-in-two chance of a reduction as soon as this year.

    5. Business
      Stock Indexes Drop As Bond Market Flashes Recession Warning
      March 22, 20199:48 PM ET
      Scott Horsley
      Major U.S. stock indexes fell Friday as short-term Treasury yields exceeded those on long-term bonds, in what some analysts consider a sign that a recession may be coming.
      Spencer Platt/Getty Images

      The stock market tumbled Friday as investors digested an ominous warning sign: Interest rates on long-term government debt fell below the rate on short-term bills. That’s often a signal that a recession is on the horizon.

      The Dow Jones Industrial Average fell more than 460 points Friday, or about 1.8 percent. The broader S&P 500 index fell 1.9 percent.

      Ordinarily, the yield on long-term debt is higher, just as 10-year certificates of deposit tend to pay higher interest rates than three-month CDs.

      Bond watchers get nervous when that typical pattern is turned on its head.

      “We don’t see that occur that often, but when it does, it’s almost always bad news,” said Campbell Harvey, a professor of finance at Duke University.

    6. Business
      Global markets fall amid slowdown fears
      22 March 2019
      Markets in the UK and US have tumbled with analysts attributing the drop to growing fears of a global slowdown.

      The FTSE 100 saw its worst day of trading this year, closing 2% lower. In the US, the three main indexes ended between 1.9% and 2.5% lower.

      The falls came after figures showed eurozone manufacturing growing at its weakest pace in five years in March.

      Combined with the Federal Reserve’s cautious tone on interest rates earlier this week, investors took fright.

      On Wednesday, the US central bank said that it did not expect to raise interest rates for the rest of the year amid slower economic growth.

      The Dow Jones Index fell 1.8%, the S&P 500 dropped 1.9% and the Nasdaq lost 2.5%, marking the worst performance for all three indexes in over three months.

      Diane Swonk, chief economist for Grant Thornton, said news that manufacturing in Germany – seen as the powerhouse of Europe – contracted last month, coupled with the continuing uncertainty over Brexit and the decision to put US interest rate rises on hold had combined to make investors nervous.

      “There’s a flurry of information which has raised risks to the downside. All that is finally hitting the market with a reality check,” she said.

      She added financial markets were “not as nuanced as people would like”, and tended to overreact to both good and bad news.

    7. After searching the internet high and low, I’ve finally found an uplifting perspective on the yield curve inversion!

      Ask Not For Whom the Yield Curve Tolls
      It looks like the Fed was wise to take a breather.
      By Mark Gongloff
      March 22, 2019, 1:32 PM PDT
      It tolls for thee, or at least for the business cycle.

      Today’s Agenda:
      Start Your Recession Clocks

      Five billion years from now the Sun will expand until it fries the Earth, and some time long after that, the universe will die in a Big Rip, Big Crunch or heat death. Oh, and some time in the next couple of years, the U.S. will have a recession.

      Everything dies, in other words; a message delivered by the bond market, which today priced the interest rate on three-month Treasury notes higher than the interest rate on 10-year Treasury notes. This is what bond geeks call an “inverted yield curve,” and it has been a sure-fire harbinger of the past seven recessions, Brian Chappatta writes. The good news, as with the death of the Sun and universe, is that we probably have some time to frolic before the current business cycle ends; Brian notes the yield curve inverted fully two years before the recession that began in 2008. And rock-bottom interest rates should be good for housing, Conor Sen notes.


  10. One more point: Even if a recession does happen, housing bulls and pimps needn’t worry, because real estate always goes up.


    1. Really Mortgage Watch? Your “data” from one year ago consists of one house on the market.

    1. Here’s when the yield curve actually becomes a stock-market danger signal
      By William Watts
      Published: June 29, 2018 3:39 p.m. ET

      Some investors are flipping out about the flattening of the yield curve, but history indicates that any histrionics are likely premature, says one prominent Wall Street analyst.

      From our perspective, the only time investors should worry about the yield curve implications is when (if) it inverts,” wrote Brian Belski, chief investment strategist at BMO Capital Markets, in a Thursday note.

    2. Anything that cannot continue forever will stop.

      — Herbert Stein’s Law

      Bonds Are Screaming A Warning: Should Investors Be Listening?
      Martin Tillier, March 22, 2019

      Following the recession, central banks around the world used bonds of various kinds as tools in their attempts to reflate the global economy. With hindsight, that seems to have worked, even despite fiscal policies that were generally unhelpful.

      But there has been one big negative. The massive purchases of bonds made by the Fed, the ECB and others and then the sale of them to reduce their bloated balance sheets have distorted the bond market. Drawing conclusions from bond market moves has been hard, and often dangerous, for around a decade. Still, what we are seeing this morning is different.

      The yield curve is now fully inverted from 1-Month out to the benchmark 10-Year rate.

      Interest rates vary depending on the length of time to maturity of a bond. Generally, when people tie up their money for a longer period of time, they demand a little more annual interest to compensate for that, so longer dated bonds have higher interest rates than short-term paper.

      If, therefore, you plot a chart with interest rates on the vertical axis and time on the horizontal, you would normally see a curve that slopes gently upward from left to right.

      Now, that curve, from 1-Month out to 10-Years, slopes downwards.

      Given the natural tendency of rates to increase along the curve, that has always been thought to indicate economic problems ahead. It suggests that the Fed is expected to cut rates in the future, something they do in response to a recessionary environment.

      When the curve was simply flattening, with a small amount of inversion at the front end, it was, as I pointed out here, wrong to read too much into that. The massive programs of bond-buying known as Quantitative Easing (QE), that were undertaken by the Fed and other central banks in response to the recession, look justified with hindsight, but the bond market started to respond to the Fed’s actions rather than economic conditions.

      Treasury prices, and therefore yields, have been moving based on the short-term influences of the Fed buying and selling securities and on attempts to normalize what were once near-zero interest rates. As I said in the above referenced article, a case could even be made that the expectation of flat interest rates that prevailed was a good thing, indicating that the Fed was in control and able to avoid the “boom and bust” cycles that had existed before QE.

      What we are seeing this morning, however, is different.

      We have gone from a flattening curve to full inversion. In other words, the bond market is not just implying stability in interest rates, it is of the opinion that they will be cut before long. That is normally a bad signal, but, given that the Fed is still trying to raise rates back to more normal levels, it is particularly significant.

      Nor are Treasuries the only part of the bond market that is flashing a warning. German government bonds, known as Bunds, have turned negative again, indicating that for many big investors, return of capital is now far more important than return on capital. The dollar too, after understandably losing ground when the Fed announced this week that there would be no rate hike this month and that further increases were being delayed, bounced right back. There are many reasons that people might buy the dollar, but its role as a safe haven in times of economic turmoil is a major one.

      Just about every market that can is flashing a warning signal that tough economic times are coming, and probably are not too far away. The exception, however, is the stock market. There, we have been pushing back up towards last year’s all-time highs.

      1. “With hindsight, that seems to have worked, even despite fiscal policies that were generally unhelpful.”

        Until the central banks successfully take away the easy money and normalize interest rates, it won’t be possible to determine whether the patient survived the extraordinary life support measures that were adopted starting back in fall 2008.

  11. “Bipartisan Press” my ass. That was the worst pile of left wing propaganda I have ever read.

  12. I’ve read several pieces from Kevin Erdmann. His views don’t really jive with what most posters here think. He doesn’t really think there was a housing bubble per se and that the Fed tried to reign in credit prematurely which is what caused 2007-2008. He thinks the main thing is that the “closed access cities” prevented building in areas where economic activity is high and wages are higher. This in turn pushed up rents and created equity locusts that fled high cost of living areas and went to lower cost of living areas to cash out (e.g. equity locusts). In his view, the bust happened because monetary policy was overly restrictive which curtailed credit to buyers in the open access cities.

    Erdmann would likely cite NIMBYism and excessive zoning regulation as the problem with housing, not monetary policy. He has some interesting, contrarian views.

    1. Sounds like a parrot of Chris Thornberg and others who claim growth restrictions in desirable areas drove up prices.

      The explanation fails to account for the global extent of the Housing Bubble, whic Ben documents here daily.

      1. Ben’s HBB blog does a fantastic job of documenting this. I do think that there is something to be said about the spillover effects. We see that what happens in China can affect our markets, so it makes sense that what happens in San Francisco and Seattle can affect Austin, Boise, and Denver.

        1. “We see that what happens in China can affect our markets, so it makes sense that what happens in San Francisco and Seattle can affect Austin, Boise, and Denver.”

          With trillions in leftover Quantitative Easing still sloshing around global financial markets, it seems plausible that a butterfly flapping its wings in China could cause a tornado to strike the Texas housing market.

Comments are closed.

Back To Top