Livin’ On A Prayer: Average US Household Net Worth Is A Staggering $692,100 As Of 2016! (Median Only $97,300)

As 1980’s big-hair, New Jersey band Bon Jovi sang, US households are “Living on a Prayer.” Or The Federal Reserve-created massive asset bubble.

As of 2016, the mean net worth of US households was a whopping $692,000! And the median is $97,300.

Quite a disparity.

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Of course, The Federal Reserves zero-interest rate policy (ZIRP) and quantitative easing (QE) helped created massive asset bubbles that have helped households to historic high net worths.

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Housing is one of the recipients of The Fed’s quantitative distortion (QD).

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One indicator? Home prices are still growing almost twice as fast as average hourly earnings.

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These are no “Tiny Bubbles”.

Gold anyone?

But YUGE bubbles. Hence, American households are living on a prayer that the massive bubbles don’t burst.

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On a side note, I used to live in Rumson NJ and Jon Bon Jovi used to run by my house on the weekends (sans the big hair).

 

US New Home Sales Fall 7.7% YoY In November, But Rise 16.9% MoM, Most Since 1992 (Months Supply Still Elevated, Median Price Falls)

Now you know why Fox Business and CNBC no longer invite me to be interviewed. They love the headline “November New Home Sales Surge By The Most Since 1992!”

Let’s start with the +16.9% MoM number, a more cheery, pop the champagne bottle headline.

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But on a YoY basis, new home sales fell 7.7% in November.

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Months supply of new home sales fell in November, but are still at elevated levels.

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And the median price of new home sales fell in November as The Fed’s normalization grabs the housing market with its icy grip.

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“The weather started getting rough, the tiny ship was tossed….”

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US Pending Home Sales Fall 9.5% YoY In December To Lowest Level Since 2014 As Fed Unwinds

As The Federal Reserve continues to unwind its balance sheet, pending home sales YoY declined 9.5% YoY, the worst since 2014.

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Pending home sales got a big boost from The Fed’s third round of asset purchases (QE3), but PHS are feeling the pain of The Fed’s unwind.

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I wonder if “The Savior,” Ben Bernanke, saw this coming. Doctor, doctor (Bernanke), we’ve got a bad case of declining pending home sales.

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Home Prices in U.S. Cities Rise by Lowest Rate in Almost Four Years As Fed Unwinds Its Balance Sheet (Vegas Fastest Growing, DC Slowest)

Yes, US home price growth continues to slow as The Federal Reserve continues to unwind its bloated balance sheet.862767_cshomeprice-release-0129

(Bloomberg) — Home prices in 20 U.S. cities rose in November at the slowest pace since early 2015, decelerating for an eighth straight month as buyers balk at the ever-receding affordability of properties.

The S&P CoreLogic Case-Shiller index of property values increased 4.7 percent from a year earlier, down from 5 percent in the prior month, and below the median estimate of economists, data showed Tuesday. Nationally, home-price gains slowed to a 5.2 percent pace.

Sure enough, US housing has gotten quite expensive (although not Singapore, Hong Kong or London expensive). But the interesting story is … look at house price growth when The Fed enacted QE3, their third round of asset purchases. Then look at house price growth when The Fed began unwinding its bloated balance sheet.

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Let’s see what happens if The Fed continues its unwind.

On a metro level, Las Vegas (still recovering from the horrid collapse in house prices in the late 2000s) was the YoY leader … again. Followed by Phoenix, rising from the housing ashes of the housing bubble of the 2000s.

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The slowest growing metro areas? Once again, Washington DC has the slowest growth rate followed by Chicago. And then New Yawk (or New York).

 

Dust Their Brooms: Should Lehman Bros Have Been “Surprised” By Their Sudden Illiquidity? (Bear Stearns Then Fannie Mae And Freddie Mac’s Stock Price Already Plunged)

Movies like “Margin Call” and “The Big Short” make the financial crisis look like a total surprise … to them. Well, it wasn’t a surprise to GSEs Fannie Mae and Freddie Mac. Their common stock prices (green line) began plummeting in December 2007. Lehman Bros stock price didn’t start plummeting until February 2008.

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Why? National home prices had peaked in 2006 and had slowly begun to retreat. But as of December 2007, the Case-Shiller national home price index had fallen 17.4% from the peak in 2016. Subprime delinquencies had risen 46.5% over the same period. U-3 unemployment started rising in a big way in 2008.

But as home prices nosedived in 2008, subprime delinquencies skyrocketed. You can see Fannie Mae’s large drop in price in November 2008 (while they didn’t purchase subprime loans in high volume, they did invest in subprime ABS and ALT-A loan deals). While ALT-A turned out to suffer big losses, they performed better than subprime after the intial subprime spike.

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On September 6, 2008, Fannie Mae and Freddie Mac were placed into conservatorship with their regulator, FHFA and remain there ever since. Also in September, Lehman Bros declared bankruptcy … afer Fannie Mae and Freddie Mac were placed into conservatorship.

*There was other lenders that failed or had to be absorbed elsewhere, like Countrywide, and Wachovia.

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But Fannie Mae, Freddie Mac and Lehman Bros demise came AFTER Bear Stearns demise in March 2008, owing to subprime deal failures. In fact, you could see trouble brewing shortly after home prices started to fall. By 2007, both Bear and Lehman were showing distress, but not Fannie Mae. Fannie Mae and Freddie Mac’s regulator, FHFA saw the warning signs with subprime and took action on September 8th (maybe prematurely since they could have continued).

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Congress bailed out the banks and Fannie Mae and Freddie Mac and swept the financial dust away (aka, dust their brooms).

Just look at the above chart. Starting in 2016, risk managment at all financial firms should have been on yellow alert. By Q4 2007, it should have been upgraded to red alert. How is it possible that Lehman Bros or Bear Stearns (or Goldman Sachs) were taken by surprise as Margin Call implied.

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Oh well.

Existing Home Sales Plunge 10.25% In December As Global Economy Is Slips Into Darkness

And no, that was not a seasonal effect. Existing home sales declined 6.4% MoM in December, the largest decline since November 2015.

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And on a YoY basis, existing home sales plunge 10.25%.

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US existing homes are very expensive compared to household income and the surge in mortgage rates during 2018 made housing ever less affordable.

The median price for existing home sales shows a seasonal pattern with June typically being the highest for the calendar year and January being the lowest.

Let’s see how Euro Zone and Japan slipping into darkness impacts the US econony and housing market.

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Student Debt Is a Driver of Low Millennial Homeownership (Combined With Declining Middle Class Wealth)

American homeownership has been on the decline (for millenials), and Federal Reserve researchers point to the high cost of college as one culprit. (Gee. ya think?)

Just 36 percent of household heads between 24 and 32 years old owned homes in 2014, down from 45 percent in 2005. At the same time, average student debt per capita rose to an inflation-adjusted $10,000 from $5,000 in 2005.

About 20 percent of the decline in homeownership among young adults can be attributed to that increase in student loan debt, the authors estimate, making such borrowing an important, but not central, driver of the decline. Some 400,000 more young people would have owned homes in 2014 if debt burdens hadn’t risen.

Average college tuition, fees, room, and board was $4,399 for public colleges in 1995-1996 and $2,081 for community colleges. By 2015-2016, costs were $9,410 and $3,435, respectively, increases of 53 percent and 65 percent. Student aid increases failed to slow down high tuition costs.

Why does this happen? It’s partly because higher student loans early in life leads to lower credit scores later in life, making it harder for former students to take out mortgages.

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But HOW did this happen? It started with President Bill Clinton and his crusade to make college more affordable. Clinton bumped up student financial assistance funding by 20 percent before he left office and introduced direct federal student loans, along with tax credits to further defray costs. Somewhat ironically, Clinton set the stage for student loans to dominate higher education funding.

And since Clinton, college tuition has grown almost exponentially. And then President Obama doubled down on the “make college more affordable” lunacy.

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Despite the fact that middle-class wealth has collapsed since 2007.

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Where do the tuition hikes go? Generally to university administrators, like Presidents, Provosts, Deans (and Deputy, Associate and Assistant Deans). And new non-academic initiatives. 

So where do (overpaid) university adminstrators go after work?  Bump City!

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