To Compensate, The Arsonist Played Fireman

A weekend topic starting with Strong Towns. “There’s a theory about housing that has taken hold with a kind of religious fervor: If you want to make housing more affordable, just build more of it. But here’s the question almost no one asks: What happens when prices actually start to fall? Because that’s not just a hypothetical. It’s already happening in places like Phoenix, Atlanta, Miami, Dallas, and more. And the response hasn’t been to declare victory. It’s been panic. Builders are walking away. Lenders are tightening. Policymakers are rushing to backstop the system. If the core problem were simply that prices are too high due to a lack of supply, everything would be as simple as theory suggests. It’s not. That’s because the system isn’t designed to survive prices coming down. In theory, we can build our way to affordability. In reality, the way we go about financing housing will never let us.”

“In the finance world, falling prices are a warning sign, a trigger for pullback, not expansion. This is why a price drop doesn’t lead to more supply. It leads to less. Case in point: KB Home recently canceled nearly 9,700 optioned lots. CEO Jeffrey Mezger explained: ‘We just determined that the market movement in those submarkets wasn’t something that we felt comfortable would hit our returns.’ This is the part of the housing system that few people talk about: More supply depends on rising prices. The financial side of the system is wound so tightly, so overleveraged, that prices must rise not just for profit, but for stability. And, in the housing system we’ve built, it’s the financial side that dominates.”

“What do we do when the prices drop and the system starts to wobble? We don’t fix it. We reengineer the financial math. We stretch mortgage terms. We lower credit standards. We backstop lenders. We find new ways to get buyers into overpriced homes without actually lowering the price. That is the Housing Trap, and it has been our approach to housing affordability since the Great Depression. It continues to be our approach today. In each of these moves, we have intricate stories we tell ourselves about our intentions. We say we’re solving for affordability. Yet, if we step back and do an honest assessment, what we’re really doing is helping people borrow more in order to pay more for housing. We don’t build starter homes anymore. The only products that get built are big, expensive, and debt-dependent because that’s what today’s financing system demands. What we’re building is the illusion of affordability, an ever-distant dream propped up by debt, distortion, and denial.”

From Yahoo Finance. “Buyers, many of whom are struggling to afford record-high home prices but feeling emboldened by having more inventory to choose from, are proving increasingly willing to end contract negotiations when they disagree with sellers over things like presale repairs. Delistings, where sellers take their homes off the market without a sale, are also on the rise. They jumped 47% in May from a year ago, outpacing recent inventory gains, according to Realtor.com. In Louisville, Ky., Realtor Bob Sokoler has seen more deals fall apart as those sellers who can ‘afford to wait it out’ butt heads with leery buyers stretched thin by high prices and mortgage rates near 7%. ‘There are a lot of unrealistic expectations,’ Sokoler said.”

“In June, Jacksonville, Fla., led the nation in contract cancellations, with 21.4% of deals falling through, according to Redfin data. Phoenix, Miami, and Riverside, Calif., meanwhile, had the highest levels of delistings relative to new listings in May. In Phoenix, 30 homes are delisted for every 100 new homes that come to market. All three cities also rank in the top 10 nationwide for contract cancellations and saw 18% or more of deals fall out of contract last month. As more sales fail to reach the finish line, Mark Hiller, a Realtor in Niceville, Fla., is getting pickier about the sellers he’s willing to represent. Home prices in Florida’s panhandle, where he works, are down around 7% from their early 2022 peak, but the decline was gradual and uneven across different cities and price points. Some sellers still aren’t aware and want to test the market by listing at top dollar. ‘This isn’t the market to do that,’ Hiller said. ‘I’ve said no to more listings this year than I have in the past five years.'”

“Craig Harris was prepared for a quick sale when he listed his condominium in Grand Rapids, Mich., in April. Like many Midwestern cities, Grand Rapids has spent years in a seller’s market, and he’d previously sold a condo after garnering multiple offers in under 24 hours. But this time, his unit sat. One prospective buyer expressed early interest but backed out, and a small price reduction garnered a few more showings but no offers. After six weeks, Harris, 32, took it off the market rather than cut the price further. ‘I’ve kind of just resigned to the fact that I will stay in this condo for as long as it makes sense to, financially and economically,’ Harris said. ‘Whether that’s another year or another three years, I think that’s just up to what the market decides.'”

The Globe and Mail. “The federal Housing Minister says the government is considering some form of intervention to deal with turmoil in the residential real estate sector, which has led to slumping sales across Canada, the cancellation of new housing projects and layoffs in the land development industry. Gregor Robertson said Ottawa is trying to decide what to do about the situation, which is raising alarm in the industry. ‘We’re looking at what tools and actions we can take federally to kickstart the market,’ the former Vancouver mayor told The Globe and Mail. In a report this week, Bank of Montreal noted that Toronto condo sales have ‘melted’ to more than 30-year lows, which is halting new projects.”

“The same report said condo starts across Canada’s largest cities have fallen sharply and are now down about 30 per cent from peak levels on a rolling 12-month basis. In Toronto, they are down about 60 per cent. Asked about Mr. Robertson’s comments, the president of real estate industry research firm Urbanation Inc. said condo prices will have to be lowered to help the market and spur projects. ‘To help, the federal government could fund the complete removal of municipal development charges and taxes and also provide credits to new home buyers under a certain price level,’ Shaun Hildebrand said in a statement. ‘There is also a record amount of unsold supply the government could purchase to provide as affordable housing.'”

Chosun Biz in Korea. “Recently, with an increase in so-called ‘malignant unsold’ dwellings after completion in local areas, a bill has been proposed in the National Assembly to exempt acquisition tax when purchasing unsold dwellings outside the metropolitan area. Real estate experts noted that while the exemption from acquisition tax may help alleviate malignant unsold dwellings to some extent, there are limits without additional benefits. Representative Yoon, the lead proponent of the bill, pointed out, ‘The housing market in areas outside the metropolitan area is experiencing long-term stagnation, and there are a significant number of dwellings remaining unsold even after completion, which burdens the local economy and the construction industry.'”

“According to the Ministry of Land, Infrastructure and Transport, as of May this year, the nationwide number of malignant unsold dwellings stands at 27,013. This represents a 2.2% increase compared to the previous month (26,422) and a 104.2% increase compared to the same month last year (13,230). The number of malignant unsold dwellings has been increasing for 22 consecutive months since July 2023. Notably, about 83% (22,397 units) of the malignant unsold dwellings are located in regional areas.”

The Kashmire Observer. “On paper, Kashmir is developing. In reality, it’s emptying out. You don’t have to go far to see the change. Construction is everywhere. Residential towers are rising in the outskirts of Srinagar, gated colonies are coming up outside Anantnag, and promotional hoardings promise smart homes in Baramulla. Developers from Delhi, Punjab, and even Dubai are buying up land and selling visions of modernity. But take a closer look. Many of these structures are finished, or nearly so, and eerily unoccupied. Glass balconies reflect the sun, but not life. Entire floors are dark. In some places, caretakers live alone in buildings designed for families.”

“This isn’t progress. It’s a disconnect. What’s missing isn’t infrastructure. It’s people. And what’s pulling people away is what this new growth fails to provide: work. Each year, thousands of Kashmir’s most skilled and educated young people leave. They leave not out of ambition, but out of resignation. Back home, the job market offers little more than government exams, low-wage private work, and the promise of uncertainty. So they leave, often reluctantly, often for good. And yet we keep building. Housing is rising as if demand were growing. In truth, the demand is speculative, driven by investors betting on a future that may never come. These aren’t homes being built for families to live in. They are assets being traded, often by people who will never live here. When real estate outpaces reality, it becomes a bubble. And Kashmir is not immune to what happens when that bubble bursts: prices crash, investors lose faith, and the local economy suffers.”

The Heritage Foundation. “Despite losing $235 billion, Federal Reserve Chairman Jerome Powell somehow still has a job—for now. His mismanagement of the Fed has not only badly hamstrung monetary policy for years but has stuck the taxpayer with a massive bill atop a general cost-of-living crisis. It’s no wonder calls for his resignation are growing. While at the Fed’s helm, Powell has completely failed to deliver price stability—something mandated by the Fed’s charter—and instead conspired to create the worst inflation in more than four decades. Adding insult to injury, Powell promised to keep interest rates low for years, only to raise them at the fastest pace in more than 40 years, hurting consumers and businesses alike.”

“Beginning in 2020, the Fed pushed interest rates down to near zero to not merely enable but encourage massive borrowing by everyone from the federal government to consumers. This was done to counter the economic effects of shutting down the economy. Setting aside the wisdom (or lack thereof) of such a policy in the first place, by 2021, there was no reason to continue this strategy. Yet Powell persisted, keeping interest rates artificially low on everything from government bonds to mortgages, and from auto loans to student loans. Debt levels exploded, and that debt found its way onto bank balance sheets, including that of the Fed, which more than doubled to $9 trillion.”

“Because Powell kept interest rates so low for so long and purchased so much debt, though, this dynamic was pushed to the brink. While Powell succeeded in creating trillions of dollars for the Treasury to spend in 2021 and 2022, he also forced the Fed and virtually all financial institutions to load up on ultra-low interest-rate assets that provided almost no revenue. Banks were willing to take that risk, largely because Powell promised interest rates would stay low for years. Of course, he then promptly broke that promise, and rates not only rose but jumped at the fastest pace in four decades.”

“This was because Powell kept the rates too low for too long, facilitating the worst inflation in more than 40 years. Like a rubber band snapping back after being overstretched, the move was sudden and violent. To compensate, the arsonist played fireman, with Powell quickly pushing rates higher to put out the inflationary fire he set in the first place. But in this game of monetary Whack-A-Mole, the Fed ended up wrecking the balance sheets of countless banks—along with its own. The American people are on the hook for Powell’s mistakes, including paying hundreds of millions of dollars daily in interest to Wall Street—a policy that is still ongoing. If anyone ever deserved to lose his or her job, it’s Powell.”