US House Price Growth Signals “Bubble” As Recession Probability Rises (On The Road Again?)

I remember when a Chief Economist at a large Washington DC area housing finance entity said that the definition of a house price bubble is when house price growth exceeds household income growth.  Sounds reasonable. But what that means is that most of the USA is mired in ANOTHER house price bubble.

According to research from Clever.  national house price growth is exceeding median household income growth. But a substantial margin.

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Of course, the San Francisco area is an extreme example of a house price bubble.

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The Los Angeles area is no bubble-slouch.

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In contrast, midwestern cities of St Louis and Cincinnati have slight house price bubbles.

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Let’s see how house prices stand up to a recession when it occurs.

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So it looks like the US is on the road again to housing crisis.

The Fed’s Little Red Book … Of Asset Bubbles: Commercial Real Estate Prices Have Over Doubled Since Post Financial Crisis Low (Equity REITs Have Quadrupled)

No, not The Fed’s little beige book. This is The Fed’s little red book of assets bubbles.

Speaking of asset bubbles, the RCA CPPI commercial real estate index has over doubled since May 2010 (that is just over 9 years!). And the NAREIT all-equity index has over quadrupled since 2009. Notice the lack of volatility in the RCA CPPI index.

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The S&P 500 Index has over tripled since 2009 and the Russell 2000 index has almost quadrupled since 2009.

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The math is pretty simple. Real estate equity and stock market indices have doubled to quadrupled since 2009/2010.

7 + 7 is …

Twilight Zone? Treasury Yields Flirt With 2% As Draghi and Trump Whipsaw Bonds (Negative Yield Global Bonds Near $12.2 TRILLION)

The US-China tariff squabble is definitely roiling markets, but the global economic slowdown (read Europe) is helping push interest rates into The Twilight Zone.

(Bloomberg) — Government debt markets surged worldwide on Tuesday on the growing prospect of central-bank stimulus amid concern about dimming global growth. The move lost some steam on signs of apparent thawing in U.S.-China tensions.

Benchmark 10-year Treasury yields slid as much as 8 basis points to 2.01%, the lowest level since 2017, as comments from European Central Bank President Mario Draghi dragged down rates across Europe. French, Swedish, German and Austrian 10-year yields fell to unprecedented lows. The move in Treasuries was briefly reversed, in part, following news that the U.S. and Chinese presidents will meet at the upcoming Group-of-20 summit in Japan, assuaging some market concerns about the fractious relationship between the world’s two largest economies.

Federal Reserve officials, who are due to deliver a policy decision on Wednesday, are confronted by a market that is pricing in a quarter point interest-rate cut by July and around 62 basis points of easing by the end of this year. Comments from Draghi that additional stimulus may be needed if the economic outlook doesn’t improve added fuel to bets on ECB rate cuts, and in turn helped spur speculation that the U.S. central bank will act too. The 10-year yield was around 2.05%, down 4 basis points on the day, as of 11:48 a.m. in New York, while U.S. equities also climbed.

“Draghi’s comments were one more indication that one of the major central banks will likely begin another round” of monetary support, said Mark Grant, chief global strategist of fixed income at B. Riley FBR Inc. “This gives the Fed one more reason to consider cutting rates because the American rates are so much higher than those in Europe or Japan. U.S. 10-year yields are headed lower.”

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The ECB is grappling with an economic slowdown and an inflation rate that remains entrenched below its goal. In the U.S., the Fed is faced with inflation running persistently below the Fed’s 2% target, falling inflation expectations and signs that the labor market is beginning to slow.

And the global stockpile of negative yield bonds is near $12.2 TRILLION.

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Europe is really seeing plunging sovereign yields with Sweden now in negative yield territory at the 10-year maturity.

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But negative interest rates don’t seem to be helping European economies.

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