There's an old saying that if you can't make your mortgage payment, you're in trouble; if no one can make their mortgage payment, the bank is in trouble. Again, that's exactly what happened.
So it seems to me that one of the prime emphases of the QE to infinity that has been going on since '08 has been to create inflation in the housing market, to make the cost of the houses, in fiat dollars, more than the mortgage note is written for. One way to do that is to make borrowing cheap, by pressing interest rates artificially low (check!). Here's a plot of mortgage rates since 1970:
The downside of all that money pumping is that every dollar is worth less compared to real physical things, like food and energy. Gas prices go up, which makes food and everything else go up. You're screwed by the attempt to make it look like the banks don't lose money.
You can see in that plot that mortgage rates face the same problem the long bond showed in the post I did last week. They simply can't go much lower without going negative, so they simply must go up. When the rates start going up, housing gets less affordable.
I'm sure you hear realtors on TV or see them in your local paper talking about how house prices are recovering. John Ransom, finance guy at Town Hall, points out some of the problems that don't show up until you look below the surface.
Half of all home purchases today are being made with cash, accord to the analysis made by Goldman Sachs.Who can buy a home for cash? In large enough numbers for it to affect this kind of national, big picture, only other banks. The banks are propping up the housing market, trying to make it look good enough so regular people buy and prices inflate.
For every dollar of purchase price, only 44 cents is being financed compared with 67 cents before the crash.
There are other ominous signs:
- Mortgage origination in the United States is only about a third of the size it was at the market peak.
- “But over the past seven years, the all-cash share of sales has more than doubled”
- With the median home price in the U.S. at $214,200, ... the average buyer is putting down $119,952
- That means that it’s highly likely that you ... can’t afford to buy a home no matter how good your credit is if you don’t have the prohibitive cash down payment. [Some editing: SiG]
House prices need to fall a lot (or real incomes grow a lot) if someone making median income is to be able to afford a median house. House prices need to rise to make the banks look good. Which do you think is going to happen? Yeah, me too.