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"Housing And Rent Prices Soared To The Highest
Level In 30 Years: Prepare Your Self For Housing Crash"
by Epic Economist
"The housing market boom has officially hit the insanity stage. Fierce bidding wars, all-cash offers, homes selling for over $1 million over the asking price are now becoming common events. But the latest increase in home prices is showing the disastrous extent of the housing crisis. Of course, this uncontrolled euphoria isn't happening by accident - it's a direct result of our current monetary policies. Even though home prices keep rising at the fastest pace ever recorded, the Federal Reserve continues to allegedly "boost" the housing market by purchasing $40 billion of mortgage bonds each month.
And while the Fed has finally started to signal it could remove some of its financial support sooner than expected, several experts have been warning that the US central bank is only expanding the magnitude of the housing bubble while it deliberates. That's because the Fed's emergency measures are artificially suppressing mortgage rates and further inflating prices that are already way too high in many markets. In other words, "the Fed just continues to pour more gasoline on that fire," as said Peter Boockvar, the chief investment officer at Bleakley Advisory Group.
However, considering how fast the economy is bouncing back from the health-crisis-induced recession and also how unsustainably high inflation levels are getting, industry specialists are alerting that soon the Fed will have no other choice rather than start tapping the brakes - at least on its bond-buying program. At this point, the latest housing market data is already completely off the charts. The median sale price for a home reached a record $341,600 in April - the highest since the National Association of Realtors began tracking the data in 1999.
Although the housing price bubble is at dangerously high levels right now, policymakers probably won't act fast enough to avert the looming housing crash. For Jason Furman, a top economic adviser, it's clear that "everything in the housing sector is going up in price. House prices are exploding right now," and "it probably isn't the case that the Fed should be continuing to artificially hold mortgage rates down," he said in an interview with CNN.
According to Danielle DiMartino Booth, a former Fed official, the latest price gains make it obvious that the Fed needs to start removing stimulus on the mortgage front. "Ultra-low mortgage rates have helped feed a frenzy in housing," stressed Booth, who is now CEO and chief strategist at Quill Intelligence.
She explained that the central bank's support for an already-booming housing market is pushing millions of first-time homebuyers out of the market and that's a very negative consequence for the overall economy because owning a home is the main way many Americans start to build wealth. So how are Millennials supposed to ever purchase a home in this wildly competitive market? In real terms, how many of them are likely to have enough money saved to make all-cash offers? At the end of the day, as the chief global strategist at JPMorgan Funds David Kelly, recently highlighted, the Fed's support is "making inequality worse [because] you end up subsidizing the rich at the expense of the poor".
Home prices have been so out of touch with reality, that the only alternative left for most Americans is to rent. But on the other side of the economic rebound, the cost of rent is squeezing people still struggling to pay their bills. Several advocates are fearing a major uptick in homelessness as federal and state eviction moratoriums expire.
Already, many renters who have fallen behind in their rent payments have started to be pushed out in the streets. And while it's not clear how long home prices will soar before buyers shy away, or how many people will be displaced because they can’t afford rent, we can explicitly see that the current housing boom has divided those who can afford to stay housed and those who can't.
In fact, home prices are now so absurd that many prospective buyers are just walking away. In April, existing home sales dropped by roughly 3%, the third consecutive month of decline. Considering the scorching hot demand for housing, this indicates there aren't enough homes on the market, at least not affordable ones. "Double-digit price increases are running too hot, to the point that it's slowing things down," as said Boockvar, the Bleakley CIO.
Simply put, the Fed's policies to allegedly "support" housing are actually depressing activity in the market, which means they are doing exactly the opposite of what they are supposed to do. Today's house and rent prices are completely unsustainable and unacceptable. And the more the bubble grows, the highest are the risks. That's why it's safe to say that the next housing crash will hit even harder than the last - so you better be prepared."