If you look at the following chart, you can see multifamily (5+ unit) starts remain elevated (pink box) which is not surprising given that home prices at growing at 19.1% YoY nationally (orange circle) and REAL hourly earnings have declined (yellow triangle) thanks to reemergence of inflation after 40 years.
Then we have the humming dragon, rising mortgage rates, that will reduce housing affordability even further.
The Federal Reserve is helping to create inflation, particularly since their unorthodox surge in money supply around the Covid outbreak in early 2020. Home prices as of the latest Case-Shiller report are rising at nearly 20% year-over-year.
To add to the problem of The Fed’s overzealous money printing we have The Biden Administration (and puppy-torturer/killer Anthony Fauci) issuing Covid vaccine edicts that are wreaking havoc in labor markets further clogging the economic pipelines.
Between The Fed ZIRP policies and Biden/Fauci’s vax mandates, we are starting to see the rise (again) of the infamous MORTGAGE TILT EFFECT!
The Tilt Effect comes about as expected inflation gets priced into mortgage rates, the mortgage payment rises as the mortgage rate rises (of course), but the higher mortgage payment occurs with EXPECTED inflation in the future.
But not quite yet. Despite CPI inflation growing at 5.4% YoY, Freddie Mac’s 30-year mortgage survey rate is only 3.01% … for now.
As inflation continues to rise (thanks to ongoing Fed ZIRP policies and governments mandating Covid vaccine in order to keep your job, we should eventually see mortgage rates rise … leading to a return of THE TILT EFFECT. Which in turns make housing even MORE unaffordable.
We have tried numerous mortgage contracts in the past (mostly to offset Carter-era inflation) such as the PLAM (price-level adjusted mortgage) and the GPM (graduated payment mortgage). Now we have the PLUM (price level unadjusted mortgage) which is subject to the TILT EFFECT.
After re-reading these excellent articles on the housing bubble and crash, I thought I would take the opportunity to present a few charts to highlight the housing bubble, pre-crash and post-crash.
Here is a graph of Phoenix AZ home prices. Note the bubble that peaked in mid 2006. The Phoenix bubble correlates with the large volume of sub-620 FICO lending and Adjustable-rate mortgage (ARM) lending. Bear in mind, many of the ARMs prior to 2010 were NINJA (no income, no job) ARM loans.
What happened? Serious delinquenices at the national levels spiked as The Great Recession set in and unemployment spiked.
Since the housing bubble burst and surge in serious mortgage delinquencies, The Federal Reserve entered the economy with a vengeance. And have never left, and increased their drowning of markets with liquidity.
The Fed whip-sawing of interest rates in response to the 2001 recession was certainly a problem. They dropped The Fed Funds Target rate like a rock, then homebuilding went wild nationally and home prices soared thanks to Alt-A (NINJA) and ARM lending. But now The Fed is dominating markets like a gigantic T-Rex.
Oddly, then Fed Chair Ben Bernanke never saw the bubble coming. Or the burst.
Speaking of pizza, Donato’s from Columbus Ohio is my favorite. Founder’s Favorite is my favorite, but they do offer the dreaded Hawaiian pizza (ham, pineapple, almonds and … cinnamon?)