A weekend topic starting with Reuters. “Lampooned by fiscal hawks as belief in a ‘magic money tree’, ever higher public borrowing and spending had seemed manageable and sensible for many years – hinged as they were on persistently low inflation that allowed central banks largesse to square the debt sustainability maths. Embrace of the coincidentally acronymed Modern Monetary Theory – which espouses active use of cheap borrowing to invest in future growth and a sustainable global energy refit – marked a crescendo of that thinking. But the big test of these ideas is coming far quicker than many suspected only 12 months ago.”
“On Tuesday the head of the world’s main central bank forum – the Bank for International Settlements – called time on the era of accommodative monetary policy in a speech entitled ‘The return of inflation’ and rebuked calls for easy policies come what may. So what does that mean for government borrowing or the fabled money tree? A report released by asset manager Janus Henderson on Wednesday detailed how global government debt has almost tripled in the past decade even though easy monetary policy associated with successive crises meant that the interest cost has only increased by a third. The latter part of the equation was now about to adjust sharply, they warned.”
The Globe and Mail. “The big investor is in the Vancouver market expressly because growth is the expectation. Patrick Condon, University of B.C. urban design professor and author of Sick City: Disease, Race, Inequality and Urban Land, argues that the housing crisis stems from the commodification of land, which is no longer based on its value for housing, but for its value as a global asset class. ‘Housing is no longer valued for its utility. It is now valued as a commodity, just like gold, Bitcoin or stocks and bonds,’ he said in an e-mail. ‘We have moved from an economy based largely on wages to one based largely on investments, with investors now in the driver’s seat. It’s extra complicated, because most of us participate in it and benefit from it, with our RRSPs and our pension fund contributions, not to mention the baby boomers benefitting from a passive gain of $4-million for their Dunbar home.’”
“‘When the dotcom collapsed in 2000, that sort of released a lot of capital and that money began to flow into commercial real estate. I’m talking globally. … When that money started to flow, it never stopped and it began to accelerate. So what you’ve got now … is really institutional capital that is driving predominantly home development,’ said developer David Fullbrook. ‘I always look at Vancouver investors as being rewarded for speculation. They buy property and they may over pay. They don’t really know what a downturn looks like. So there has always been money to be made, and the province is constantly trying to manipulate the system to drive or incentivize capital to behave in a certain way – and we are just too late.’”
“‘I don’t judge it,’ he adds. ‘I just recognize it as being a factor of the market, that there is an avaricious quality to investors.’”
From KCTV in Kansas. “People looking for a new home in the Kansas City metro are running into a new obstacle that’s driving the price of some homes out of reach. ‘You are dealing with investors who are coming in with unlimited money, and they are not worried about appraisals, they are not worried about inspections. They wave everything and they are bidding higher, and a lot of buyers can’t necessarily compete with that,’ says Erich Goldstein, associate broker for Better Homes and Gardens Real Estate.”
The Waco Tribune Herald in Texas. “‘We can host an open house on Saturday, and we’re getting offers by 5 p.m. on Sunday, maybe 10 or more, and these are half-million-dollar houses,’ said Kirsten Clements, an agent with Camille Johnson Realtors.”
From Denver 7 on Colorado. “Denver7 sat down with Jeff Tucker, a senior economist with Zillow. ‘Yeah, it’s kind of a classic tale of ‘drive till you qualify’ and it’s become very true during the pandemic. Q: But still, you’re saying hold on to hope. JT: We’re definitely seeing more homes hitting the market.”
From KPBS on California. “A story by Voice of San Diego Managing Editor Andrew Keatts reports on the experience of Dohney Castillo and Maricela Lopez-Beltrán and their quest to buy a home. The couple, who have two children, work in San Diego. Castillo is a sanitation worker at Republic Services in Chula Vista and Lopez-Beltrán is a social worker with San Diego County. They chose to buy a home in Murrieta five years ago after qualifying for a loan of up to $450,000. The choice was between a two-bedroom condo in San Diego County or a four-bedroom home in Riverside County.”
“Castillo now leaves his home in Murrieta for work at 3 a.m. and gets home at 7 p.m. leaving him about two hours with his 4-month-old daughter, Mila, before going bed. Castillo and Lopez-Beltrán are now two of an estimated 50,000 Riverside County residents who work in San Diego County, based on Voice of San Diego reporting. ‘For me, it’s still worth it — there are small moments where I get to see her, and I cherish those moments,’ he said. ‘I spend so much time commuting and working that, even just seeing her sipping a bottle or sleeping, I cherish those moments too.’”
From BBC. “Since 2015, property prices have increased faster than incomes in most major economies, including Canada, Germany and the UK. The disconnect has worsened since the pandemic hit in 2020, when policymakers around the world slashed interest rates. ‘We’re in kind of a unique time where housing prices are rising disconnected from household income and part of that is because of the incredible amount of money, of finance involved in housing,’ said Suzanne Lanyi Charles, professor of city and regional planning at Cornell University.”
The Washington Post. “It has been nearly three decades since mortgage rates spiked this quickly. And there’s no indication they are going to slow down anytime soon. ‘Like Einstein’s theory of relativity, when the Fed wants rapid reductions in balance sheet holdings, the market rate of interest to consumers will have an equal and opposite reaction and rise just as rapidly,’ said Derek Egeberg, certified mortgage planning specialist at Academy Mortgage.”
“The demand for mortgage-backed securities has softened, and the Fed may be forced to sell its mortgage-backed securities’ holdings ‘after balance sheet runoff was well under way,’ according to the minutes.”
From CNBC. “‘Whether or not what they’ve got plotted out is enough, we will find out in time,’ Paul McCulley, former chief economist at bond giant Pimco and now a senior fellow at Cornell, told CNBC in a Wednesday interview. ‘What they’re telling us is, if it’s not enough we will do more, which is implicitly recognizing that they will increase downside risks for the economy. But they are having their Volcker moment.’”
From CNN Business. “‘There are a bunch of things that are troubling signs that suggest that home prices are getting ahead of the ability of people to live in those homes and afford them,’ said Christopher Mayer, a real estate professor at Columbia Business School. ‘At some point investors have to sell to someone. They can sell to other investors — that’s a bubble. But … eventually houses have to be affordable for the people who live in them.’”
From Mises.org. “‘Two of the main negative consequences of Fed money creation are inflation and the boom-and-bust business cycle, both of which lower living standards significantly. Inflation raises living costs and erodes savings, while the business cycle wastes scarce resources by encouraging their allocation to bad investments. At least Greenspan has been honest about the Fed’s inability to forecast the economy: ‘People don’t realize that we cannot forecast the future. The number of mistakes I have made are just awesome.’ Greenspan also admitted that the market is much larger and more powerful than the Fed: ‘The market value of global long-term securities is approaching $100 trillion now swamp the resources of central banks.’”
“The Federal Reserve cannot control the economy or even the money supply and interest rates. And Fed leaders clearly cannot predict the economy, even though the media and Wall Street hang on their every word. But the Fed can lower living standards by destroying the value of the dollar and causing the boom and bust cycle. Economic theory and economic history have proven that government central planning does not work in creating stability or prosperity. That includes centrally planned monetary policy.”
The Stamford Advocate. “The oracle of all home values — Zillow — says that the average Connecticut home now costs over $340,000, a 15 percent increase just in this last year. This explosion of price is higher than a robust inflation rate and more than an increasing mortgage rate. The result, for whatever reason, is that more people want to buy more homes than in any year since the advent of The Great Recession, almost fifteen years ago.”
“If the past is prologue, this boom will bust, but in the meantime the huge influx in cash that a housing boom generates means a fresh bombardment of hype as Big Real Estate (developers, agents, even architects and builders) use profits to fan the flames of irrational exuberance. Given that this is the fifth boom that I have experienced in the 45 years I have been in architecture, the deja vu is redolent. It may be a good time to offer up some insight into the hype machine. There are ‘push button’ triggers used by those marketing homes, and all of them have one foot in our values and the other in our aspiration to virtue signal them in our home.”
“The ‘Flip’ home is a ‘pig in a poke.’ In booms, flawed homes are purchased in good neighborhoods, then cynically tarted-up to make a quick sale, then abandoned to new owners that deal with the motivations of those seeking profit. The ‘Tear Down’ has re-emerged for the fourth time in thirty years. The ‘Great Location’ of an ugly home can have a value in a housing boom profit-driven market greater than the value of embodied energy every building has.”
“In a housing boom, you may be able to sell your home for far more than you ever thought possible, but no matter what you buy now will probably be far harder to sell when this bubble pops. If you live in a cliche, or a home with failed technology, or the never-ending leaks of a roof built to sell more than shed water, that sale becomes even harder. Think before you buy, and buy what you know, not what you aspire to be.”