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Housing’s Mini-Bubble Has Popped.

Written by Gary North on July 18, 2013

Mortgage rates are up. Mortgage applications are down.  New home permits are down. New home construction is down. Not a little down. “Falling off the burning trestle” down.

Mortgage applications. Zero Hedge comments:

For the 9th week of the last 10 mortgage applications fell (led by refis – down 55% from their peak). Now down an incredible 45% from its May highs – the largest 10-week plunge since December 2010 – overall mortgage activity is languishing around the lowest levels of the post-recession ‘recovery’. Year-over-year, applications have dropped 44% which is close to the worst on record as applications and mortgage rates track one another in their ‘whocouldaknowed’ perfectly correlated manner. It seems – for all those blinkered pollyannasgiven this morning starts and permits disaster, that home sales are the next shoe to drop and judging by the empirical relationship with apps and rates, the ‘surprise’ could be significant for many who remain hopeful.

New home permits.  Zero Hedge comments:

Wall Street’s infatuation with housing as a flippable investment asset, praying that a greater fool has cheaper access to credit and will thus buy up all the diestressed property, just evaporated manifesting itself in a 27% drop, or 86K units, in multifamily housing, which plunged back to September 2012 levels or 236,000. And while single-family units never actually benefited from the “housing recovery”, as the REO-to-Rent scheme never involved actual houses, the decline in single-family housing continued for the 4th month in a row, dropping to only 591K, or the lowest since November 2012.

Multi-family housing starts. The figure was down by 26%, May to June. The recovery had been here. Now it has departed. Gone. Popped.

Mark Hanson saw it coming. It has now come.

Long periods of extreme stimulus do a great job in filling pent-up and pulling forward demand.   They create mal-investment like we have seen in residential real estate with PE firms tripping all over themselves to pay 10% to 20% more than appraised value/list price for the “privilege” of a 3% yield, which now by comparison looks terrible as a bond replacement trade.

Our thesis in 2009/10 proved outthe First-Time buyer was the primary beneficiary of the $8k Tax Credit, which released a ton of pent-up demand, but more importantly pulled forward demand from years into the future.  This led to a severe “hangover”, as First-Time buyer volume plunged post-credit and has never been as strong since.

This time around the primary beneficiary to the Twist/QE3 stimulus was the “investor” paying cash as a bond replacement trade.  And just like the loss of the $8k ended the frenzied demand from first-timers, rental yields similar to UST-10s will end the “exuberance” by PE firms in housing as a “trade”.

The Twist/QE3 stimulus aimed right at mortgage and housing was the greatest stimulus of all time by an order of magnitude.   And we lost it ALL in a period as quickly as we lost the “Homebuyer Tax Credit”.   As such, I don’t see why we should expect something different as an outcome.  This, I see similar pressure on house sales volume and prices as we saw in 2010, which kicked off the “double-dip”…of course, that only ended in mid-2011 with the introduction of greatest stimulus of all time…Twist and subsequently QE3.

On July 17, Bernanke testified to the House Financial Services Committee. He said that the housing recovery has been central to the overall recovery. He said this recovery in housing would likely continue.

Housing has contributed significantly to recent gains in economic activity. Home sales, house prices, and residential construction have moved up over the past year, supported by low mortgage rates and improved confidence in both the housing market and the economy. Rising housing construction and home sales are adding to job growth, and substantial increases in home prices are bolstering household finances and consumer spending while reducing the number of homeowners with underwater mortgages. Housing activity and prices seem likely to continue to recover, notwithstanding the recent increases in mortgage rates, but it will be important to monitor developments in this sector carefully.

Bernanke did it. Let us not forget this after he retires next February. Bernanke did it. When the bad news on housing is on the evening news, recall once again: Bernanke did it. With QE3 pouring $40 billion of newly counterfeited money a month into Fannie/Freddie, and mortgage rates rising from 3.35% to 4.6% in two months, let us sing the chorus: Bernanke did it.

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5 thoughts on “Housing’s Mini-Bubble Has Popped.

  1. Obama and Bernanke are screwing this great nation and all of it's citizens right into the ground. I read in the paper of all of the foreclosures and I think about these people, a lot of them I know personally, and I think of all of the crap that Obama spewed at the people as he campaigned for his second term. Crap liking "moving forward" and "hope and change". It is more like "moving out" and "hope" to find a place to live in, and "change" the address and phone number. We can survive until 2014 and then get a conservative in the white house and turn this mess around. This administration is pathetic at best.

  2. It's not just the current suits in office–for decades the PTB would rather eat dog doodoo than allow prices to fall to market-clearing levels. It happened in the Roosevelt era, and right down to the present day. It's politically impossible to do otherwise. Of course, eventually the market wins, but by that time most of the rubes have lost track of cause and effect, which is precisely the idea.

  3. BTW–this is why the hatred of hard money. This is why fiat currency. This is why the central bank. Otherwise there would be no way to manipulate the economy via currency creation and fixing interest rates.

  4. Don't mention these truths to any member of the NAR, (re-al-a-ter) or someone who just "Invested"!

  5. Obummer is a communist, and he was taught by his dad Frank Marshall Davis who was also communist. You tube Frank M Davis and get ready for the shock of your life.