The Federal Reserve, and therefore the economy, is caught on the horns of a dilemma of our own making.
ZIRP (zero interest rate policy) and the aggressive pumping of money (upwards of $85 billion a month) into the financial system have tripled our money supply.
If it weren’t for nearly stagnant money velocity (MZ), we would be seeing inflation / CPI in the 20% range or more.
This disruption of the money supply has sent confusing signals to both markets and Main Street, distorting prices and misallocating resources as the newly created dollars search for opportunities to earn a return.
Housing is perhaps the canary in the coal mine telling us that things are not going well and danger is close by.
Even with 3% 30-year mortgages and no money down, we have to go back to 1997 to see such such low levels of home ownership in America.
New housing starts, while showing some improvement, are still quite weak, perhaps even stalling out. We now see a return to the Adjustable Rate Mortgage, a financial vehicle at least partially at fault for exacerbating the housing bubble.
Recently doctorhousingbubble had a terrific article on this strange phenomenon:
“At the same time, we find out that the home ownership rate continues to fall reaching a multi-decade low while rental vacancies slowly decline. All of this of course makes sense given a supply constrained market and a massive amount of investor buying over the last few years adding rental properties to the market (taking off market potential single-family homes for actual purchase). What is troubling about the data is the difficulty for first-time buyers to enter into this odd market. Having a larger share of our market as renters might make sense given economic constraints of household incomes yet it should be abundantly clear who the big winners were from all the Quantitative Easing that has occurred. Welcome to rental nation.”