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Home prices go through the roof,

Scorpio

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#1
Home prices go through the roof, defying forecast of tax-law hit

By Andrea Riquier

Published: Apr 4, 2018 8:35 a.m. ET

Home prices are accelerating in the early part of the year, according to multiple sources




Home prices picked up steam in the first few months of the year, according to a report out Tuesday, defying expectations of a slowdown in price growth after years of scorching-hot gains and the industry-damaging effects of a tax bill that reduced preferential treatment for homeowners.

The Home Price Index from real estate data provider CoreLogic showed national yearly price growth of 6.7% in February. That’s up from a 6.1% annual price gain in the prior three months, 6.0% annual price gain in the four months before that and 5.9% growth the month before that... you get the idea.

Prices aren’t just rising, they’re accelerating. And that stirs uncomfortable questions about how long such gains can go on, what could happen when they end and what it all means for the housing market.

(It’s worth noting that CoreLogic’s findings are corroborated by price data from the National Association of Realtors, which found year-over-year price changes had increased every month since last October.)

After so many years of robust home-price growth, CoreLogic considers nearly half of the 50 largest metropolitan areas “overvalued,” it said in a release.

“Family income is rising more slowly than home prices and mortgage rates, meaning that the mortgage payment takes a bigger bite out of income for new homebuyers,” said Frank Martell, CoreLogic’s president and CEO. “Often buyers are lulled into thinking these high-priced markets will continue, but we find that overvalued markets will tend to have a slowdown in price growth.”


San Francisco is one example. After charting double-digit price gains for over a year, the City By The Bay had a small correction back in 2016. Annual price growth dropped to 9%, then 8%, all the way to 5%. But after a year or so, prices started growing again, and were back to double digits in January, according to Case-Shiller data.

In the national market, meanwhile, economists have been calling for a slowdown in price gains for years. Last summer, CoreLogic called for cooler 5% price gains for 2018.


Some housing analysts think that surging price gains that exceed what normal macro fundamentals call for suggest that the housing market is more dysfunctional than might be apparent. As one industry veteran told MarketWatch last December, everything from homeowners reluctant to sell because they think they’ll never find such a low mortgage rate again, to institutional investors who buy entry-level homes to rent out could be pressuring prices upward in ways that analysts can’t quantify — and that leave buyers frustrated.
It’s also worth noting that normal patterns of supply and demand aren’t the only factors that economists believe will eventually bring prices back to earth. Many analysts, including the National Association of Realtors, believed that the tax cuts passed late last year would bite into housing demand, thus reducing prices.

That may be happening in some markets. In the fourth quarter of last year, sales activity in Manhattan was at the lowest pace in six years, according to a report from brokerage Douglas Elliman. Prices fell over 10% compared to a year ago. “The pace of the fall market noticeably cooled as market participants awaited the housing-related terms of the new federal tax bill,” Elliman noted.

That shakiness continued into the first quarter, according to a report from another brokerage. Median prices declined 1% and the volume of sales was down 12% compared to a year ago, according to Halstead’s first quarter 2018 market report.

Still, in most areas of the country, where the median sales price isn’t over $1,000,000, the tax changes may not weigh as heavily. In many metros, a better question might be how much longer can would-be buyers, especially first-timers, keep the momentum going as they search in a market where supply is so tight.

https://www.marketwatch.com/story/h...er-defying-forecast-of-tax-law-hit-2018-04-03
 

the_shootist

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Where have we seen THIS before?
 

davycoppitt

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Real estate buddy just listed a house in a decent area close to us. He said the house was junk and asking price was 260k. 10 offers the first two days. He expects our area to be crazier than last year. I'm currently trying to figure out a way to get rid of my house, but the problem is I cant find a decent place. We are currently looking at options.
 

the_shootist

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Real estate buddy just listed a house in a decent area close to us. He said the house was junk and asking price was 260k. 10 offers the first two days. He expects our area to be crazier than last year. I'm currently trying to figure out a way to get rid of my house, but the problem is I cant find a decent place. We are currently looking at options.
I plan on moving south for my retirement. Perhps I should cash out in HE a bit earlier than planned and pay cash for a place in North Carolina
 

bb28

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When I drive around CA, I see signs where you can buy a house with no money down. That ought to help -- either push up prices or get some broke people into a house.

bb
 

Goldhedge

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Guess what else they're selling... da da lut da da lut da da lut da da daaaaa....



And the fastest growing bank asset in 2017 was… SUBPRIME!
Simon Black

April 3, 2018

Santiago, Chile

They say that goldfish have the shortest memory in the Animal Kingdom… something like 3-seconds.

But it turns out this isn’t actually true.

Researchers at the Israeli Technion Institute of Technology conducted an experiment in 2009 proving that even the tiniest fish could be trained to recall certain sounds after as long as FIVE MONTHS.

According to another study from the University of Chicago, Dolphins ostensibly have the best memories in the Animal Kingdom, and in an experiment were able to recall a distinct whistle after 20 YEARS.

Then there are bankers… financius dumbassus, a curious species not fully related to the Animal Kingdom, somewhat descended from protozoa, who display truly bizarre behavior when it comes to memory function.

Case in point: Throughout the mid-2000s, bankers engaged in woefully short-sighted, self-destructive behavior by loaning their depositors’ money to risky borrowers who put no money down to buy overpriced houses.

These loans called ‘subprime mortgages’. And before long, some even more self-destructive bankers began packing thousands of these subprime mortgages together into gigantic bonds, which bankers would trade among themselves.

Everybody in the financial system was in on it.

The mortgage brokers raked in huge fees for closing individual loans.

The investment bankers made money packaging the loans into subprime bonds.

And the ratings agencies (like S&P and Moody’s) made money slapping pristine “AAA” ratings on these bonds, essentially promising the world that they were RISK FREE.

Looking back they obviously weren’t risk free.

Banks were making risky loans to borrowers who had a history of not paying their debts based on the premise that home prices only increase in value.

And when home prices started to fall, the entire apparatus collapsed in late 2008.

You’d think that the entire financius dumbassus species would have learned from this experience.

But you would be wrong.

And that’s because financius dumbassus has an incredibly short memory.

Not even a decade after these loans nearly brought down the entire global economy, SUBPRIME IS BACK.

In fact it’s one of the fastest growing investments among banks in the United States.

Over the last twelve months the subprime volume among US banks doubled, and it’s already on pace to double again this year.

Bottom line– financius dumbassus is once again back to its old ways… making risky loans to borrowers with pitiful credit.

What could possibly go wrong?

Leave it to financius dumbassus to try the same thing again and expect a different result. It’s textbook insanity.

Of course, they don’t call it ‘subprime’ anymore. Now it’s called “non-QM”, meaning “non qualified mortgage.”

But it’s exactly the same thing– borrowers who don’t qualify for a conventional loan because of their pitiful credit and inability to make a down payment.

It’s as if they think they’ll be able to avoid the same consequences simply by changing the name. It’s genius!

As a friendly reminder, financius dumbassus isn’t making these suprime/non-QM loans with its own money.

Oh no. They’re making these loans with their depositors’ money. YOUR money.
 

hammerhead

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With low or no moolla down financing, there is a insurance that has to be paid. Add that to the monthly mortgage payment for a few years. Money will never be seen again as it doesn't go towards principle.
 

<SLV>

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#8
It will be interesting to see if this is sustainable in the face of rising interest rates. Or... will rising rates just make subprime more attractive, and thus encourage scruple-less bankers to push loans on irresponsible borrowers?
 

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#9
They are not dumbasses, they profited without consequence under Bush and Obama's SEC.They have positive memories, not short memories.
Now Foreclosure King Mnuchin is in charge of the Treasury.
The dumbassess are the subprime borrowers and people looking to flip properties as we get towards the top of a RE cycle.
May have a few years left to run, or maybe not.
Personally looking at selling. Market looks favorable in our area.
 

Cigarlover

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#10
Didn't the new tax plan do away with the mortgage deduction? If so I would think that would impact the market. Rising interest rates should also kill the market. A great example of, your home is only worth what someone can afford to pay. So if some can afford to pay 2k a month, your home price depends on what the interest rate is. 3% or 6% is a big difference.
 

solarion

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#11
If the long bond goes to 6%(lol) there'll be lots of blood in the streets...which will of course lower demand for housing...
 

Ensoniq

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#12
I plan on moving south for my retirement. Perhps I should cash out in HE a bit earlier than planned and pay cash for a place in North Carolina
Most of NC IS CONSERVATIVE unless you're in Charlotte or Raleigh

You can get some real bang for your buck if you look hard.
 

keef

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#13
Got to load that dirigible before you hit the tower

1523216866834.png
Load it with 'subprime' mortgages and let 'er go!
 

Silver

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#14
I hope the RE market holds a while longer. I'll be marketing soon. If we go to sub-prime, the blow off top is yet to come.
 

dacrunch

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#15
My wife watches a House Remodeling show called Chip & Joanne Fixer-Upper (or such)... In Waco, Texas. I can't believe how inexpensive the houses appear down there... about $100k for a very decent house...

If I was sitting on a million dollar house in some city where I didn't want to live any longer, I'd consider that.

Halfway through the process myself = sold my apartment in Paris at a decent price. Now renting a house twice as big in Provence in the South of France (for about the same amount as my maintenance fees on the old apartment!)... and looking for a place to purchase.

A bit tough to find what I'm looking for, though... Lots of criteria (big enough garage for camper van, not isolated [break-ins when overseas], close walk to shopping & public transport (wife doesn't drive), not too many repairs, not dark, and inexpensive. Anything with a view of the Mediterranean is out of the question, money-wise, since they made the EU, and all the Brits & Germans & Scandinavians don't need resident papers to move/retire down here... not to mention vacation rental investments. So in the back-country, hopefully with a view... for under $200k-ish... Not "US-sized", a "big" house here is 1000, 1200 square feet, 3 bedrooms, one bath. But made out of stone, won't rot and get chewed by termites & ants in 30 years...
 

TAEZZAR

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#16
I was buying & moving a lot from 1967 to 1994. I found that, in general, you cannot qualify to buy your own home at the price & conditions that you just sold it at !!

My other point is : When will PM's follow ? :don't know:
 

dacrunch

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#17
Raised my family in the 80's-90's... Was lucky enough to be able to finance with one blue-collar (Trade-Union) wage and a decent down-payment (30%). Houses under $150k at the time.

Not the case for my son's family in the same real-estate market. Wages are up only 20% from the '80's, but house prices have at least tripled. So his family is living in one of my rental apartments - one income ($500/week), stay-at-home wife, 2 toddlers, third on the way... Daycare too costly to consider... Can't even pay rent, let alone set aside for a downpayment. At least pays utilities.

I think there are millions in that case, brought about by the banksters & REITs (for pension funds)... over-inflating housing prices.
 

TAEZZAR

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Raised my family in the 80's-90's... Was lucky enough to be able to finance with one blue-collar (Trade-Union) wage and a decent down-payment (30%). Houses under $150k at the time.

Not the case for my son's family in the same real-estate market. Wages are up only 20% from the '80's, but house prices have at least tripled. So his family is living in one of my rental apartments - one income ($500/week), stay-at-home wife, 2 toddlers, third on the way... Daycare too costly to consider... Can't even pay rent, let alone set aside for a downpayment. At least pays utilities.

I think there are millions in that case, brought about by the banksters & REITs (for pension funds)... over-inflating housing prices.
Thank you, destruction of the middle class !!!
 

Silver

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My wife watches a House Remodeling show called Chip & Joanne Fixer-Upper (or such)... In Waco, Texas. I can't believe how inexpensive the houses appear down there... about $100k for a very decent house...

If I was sitting on a million dollar house in some city where I didn't want to live any longer, I'd consider that.

Halfway through the process myself = sold my apartment in Paris at a decent price. Now renting a house twice as big in Provence in the South of France (for about the same amount as my maintenance fees on the old apartment!)... and looking for a place to purchase.

A bit tough to find what I'm looking for, though... Lots of criteria (big enough garage for camper van, not isolated [break-ins when overseas], close walk to shopping & public transport (wife doesn't drive), not too many repairs, not dark, and inexpensive. Anything with a view of the Mediterranean is out of the question, money-wise, since they made the EU, and all the Brits & Germans & Scandinavians don't need resident papers to move/retire down here... not to mention vacation rental investments. So in the back-country, hopefully with a view... for under $200k-ish... Not "US-sized", a "big" house here is 1000, 1200 square feet, 3 bedrooms, one bath. But made out of stone, won't rot and get chewed by termites & ants in 30 years...
I don't know about Waco, but Far West Texas is pricey. Minimalism is high dollar.

https://www.realtor.com/realestateandhomes-detail/208-E-San-Antonio-St_Marfa_TX_79843_M77723-00099

This one was just written up in the New York Times:
https://www.realtor.com/realestateandhomes-detail/309-N-Highland-Ave_Marfa_TX_79843_M88100-88546

https://www.realtor.com/realestateandhomes-detail/401-W-Plateau-St_Marfa_TX_79843_M83785-93200
 

Scorpio

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#22
not a fan of boom towns,

boom bust all for other than true economic reasons,

tulips, shitcoin, all the same to me,

really really hurts the long term residents that aren't prepared to pull up stakes and go elsewhere,

the people in ND found out just how bad it gets,
without considering the truck traffic, and so on
 

Silver

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#23
not a fan of boom towns,

boom bust all for other than true economic reasons,

tulips, shitcoin, all the same to me,

really really hurts the long term residents that aren't prepared to pull up stakes and go elsewhere,

the people in ND found out just how bad it gets,
without considering the truck traffic, and so on
What's going on here is New York and LA hipster/artist cult types are moving here for the art scene. The extraction industries/truck traffic is what will take the bloom off the rose, or a big economic bust. That why I'm planning my exit while the getting is good. Plus all the hipsters are irritating - better than the meth heads, but that's a different story (border drugs).
 

hammerhead

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#24
What's going on here is New York and LA hipster/artist cult types are moving here for the art scene. The extraction industries/truck traffic is what will take the bloom off the rose, or a big economic bust. That why I'm planning my exit while the getting is good. Plus all the hipsters are irritating - better than the meth heads, but that's a different story (border drugs).
Does anybody actually create in that area?
 

davycoppitt

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That is kind of what happened to our area. In the past two years the hipsters started to take over. They are mostly the ones getting the high bid on the houses in our area. "All are Welcome" signs are popping up everywhere. Our neighbor just put one out. Hipsters bring good and bad. They keep their houses and yards nice and don't cause much ruckus. Also they are driving the prices of houses up drastically. The crappy side is hipsters bring all their liberal BS with them.

Loved it here, my roommate from college lived 5 blocks away. They just sold this last month for a 65k gain in 3 years. He moved in with his in-laws. They winter in FL and summer will spend at the cabin, so they pretty much have a big empty house. They will live there until they find something out west of us about 30 min on a good day, with snow could be 1-2 hours on up, but they want out of the city and don't care about the commute. Sweet deal. They can stay at the in-laws house without the in-laws there for pretty much as long as it takes them to find the house they are looking for.

I've been looking at options and really don't have much. Pretty much my only option is to wait it out in hopes my real estate buddy comes across another steal. Looked at out further, but just cant do the commute with on call and night classes. Would love to move back in with my parents for a few years, but the wife would kill me...or them. Looked at town houses, but they are also high. Renting may be an option, but would need the market to tank in the next few years or a deal to come along. I guess ill pretty much be sitting tight for the time being, waiting and watching.
 
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Silver

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#26
Does anybody actually create in that area?
This cattle country as far a producing. Other than that, we have encroaching oil and gas production. Most of the people that move here either work for the State or Feds (State Parks, National Parks, UT, or Border Patrol) or they bring their own money. The New York/LA art scene is driving the high end RE market.
 

Thecrensh

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#27
I wonder if the price increase is a result of high demand - demand caused by people looking for relatively safe places to put their money? We've seen volitile markets, bonds pay next to nothing, gold/silver are "meh". Where can you park a few million and still get decent income or return on your buck?
 

hammerhead

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This cattle country as far a producing. Other than that, we have encroaching oil and gas production. Most of the people that move here either work for the State or Feds (State Parks, National Parks, UT, or Border Patrol) or they bring their own money. The New York/LA art scene is driving the high end RE market.
A lot of our area's home sales are from outside money. To the purchasers, the prices are a bargain. My guess is with the stock market making many wealthy on paper, they have to spend their earnings or pay the tax man.
Rents are more expensive than a mortgage. Of course a mortgage requires financing.
 

bb28

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I keep hearing in CA that the majority of the house purchases are by wealthy Chinese in cash. Many are shell purchases and they don't rent or occupy the properties. Ironically, because of that, affordable housing simply cannot exist because anything affordable will get bought up and then held in a portfolio by someone.

bb
 

hoarder

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I keep hearing in CA that the majority of the house purchases are by wealthy Chinese in cash. Many are shell purchases and they don't rent or occupy the properties. Ironically, because of that, affordable housing simply cannot exist because anything affordable will get bought up and then held in a portfolio by someone.

bb
What's the sense in holding a portfolio?
 

edsl48

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#34
Interesting take on the housing price situation.
The housing crisis - there’s nothing we can do… or is there?
The demand side of the housing market has one main factor: new mortgages created by the banks... this means house prices - and the resulting housing crises - are driven by mortgage lending. So how should our politicians and policymakers respond? Professor Steve Keen suggests a solution...

I’ve seen this story so many times. A tragedy occurs – politicians wring their hands and send thoughts and prayers, but don’t pass legislation that might help bring an end to such tragedies. Instead, they defend legislation that enabled the tragedy to occur in the first place.

Only I’m not talking about US gun deaths and the Second Amendment. I’m talking about overpriced housing and the subservience of politicians to the finance sector, virtually everywhere in the developed world.

The story told by politicians (and most pundits) is that, as with all other commodities, the price of housing is set by supply and demand, and the main problem in the housing market is inflexible supply. Here they lay the blame at the feet of local councils (or whoever is responsible for zoning laws) for not allowing more building approvals. If this issue is dealt with, they tell us supply would become more flexible and prices would fall.

And politicians do want house prices to fall don’t they, for the sake of the young people who can no longer afford to buy? Of course not – if they did, the wealth of generally older property owners wealth would decrease, as would their votes for the said politicians at the next election.

Since these older and more economically powerful property owners dominate the electorate, politicians are reduced to doing their best Man of La Mancha impersonations: they “Dream the Impossible Dream”, and aspire to bring about “affordable” expensive housing.

The best way to do that is to give young people a government handout to let them climb onto the property ladder. A name evocative of concern for the young, such as the “First Home Buyers Grant” in Australia, or even more evocative, the “Help to Buy” Scheme in the UK, helps make the policy look worthy.

This way, politicians are seen to be doing something to help the young, deflecting blame onto others (as they rail against rigid supply, which is not their responsibility), while actually fuelling the engine that drives house prices higher faster than consumer prices (and household incomes).

1523330340866.png

That fuel is leverage – the rising level of household debt compared to income. Not only can politicians do something about this by changing the regulations on bank lending – they have done something about it in the past, by changing the regulations in ways that allowed this bubble to form in the first place.

House prices only took off when politicians followed the advice of economists – and the special pleading of the finance sector – that the economy would work so much better if the heavy hand of government regulation was lifted, and industry was allowed to innovate. However, the innovations we got were not industrial but financial, as banks found ever more ways to persuade households (and also corporations) to take on more debt.

Here the UK data is remarkable, even in the context of a worldwide trend to higher levels of leverage. Between 1880 and 1980, private debt in the UK fluctuated as a percentage of GDP, yet it never once reached 75% of GDP. But in 1982, both household and corporate debt took off.

In 1982, total private debt was equivalent to 61% of GDP, split equally between households and corporations. 25 years later, as the global financial crisis unfolded, private debt was three times larger at 197% of GDP, again split 50:50 between households and corporations.

The key changes to legislation that occurred in 1982 is the UK let banks muscle into the mortgage market that was previously dominated by building societies. This was sold in terms of improving competition in the mortgage market, to the benefit of house buyers – allegedly, mortgage costs would fall.

But its most profound impact was something much more insidious: it enabled the creation of credit money to fuel rising house prices, setting off a feedback loop that only ended in 2008. Building societies don’t create money when they lend, because they lend from a bank account that stores the accumulated savings of their members. There’s no change in bank deposits, which are by far the largest component of the money supply.

However, banks do create money when they lend, because a bank records a loan as their asset when they make an identical entry in the borrower’s account, which enables the property to be bought. This dramatically inflates the price of housing, since, as the politicians themselves acknowledge – housing supply is inflexible, so prices increase far more than supply.

1523330389359.png

So, far from tight housing supply being an excuse for national politicians to do nothing, it’s a reason for them to reverse the effect of the decision they made, decades ago, to let banks create money and inflate house prices in the first place. “Supply and demand” is a reason for politicians to act on the monetary demand side of the housing market (the following argument summarises an as yet unpublished technical paper by myself, Paul Ormerod and Rickard Nyman).

The supply side of the housing market has two main two factors: the turnover of the existing stock of housing, and the net change in the number of houses (demolition of old properties and construction of new ones). The turnover of existing properties is far larger than the construction rate of new ones, and this alone makes housing different to your ordinary market.

The demand side of the housing market has one main factor: new mortgages created by the banks. Monetary demand for housing is therefore predominantly mortgage credit: the annual increase in mortgage debt. This also makes housing very different to ordinary markets, where most demand comes from the turnover of existing money, rather than from newly created money.

We can convert the credit-financed monetary demand for housing into a physical demand for new houses per year by dividing by the price level. This gives us a relationship between the level of mortgage credit and the level of house prices. There is therefore a relationship between the change in mortgage credit and the change in house prices – this relationship is ignored in mainstream politics and mainstream economics.

But it is the major determinant of house prices: house prices rise when mortgage credit rises, and they fall when mortgage credit falls. This relationship is obvious even for the UK, where mortgage debt data isn’t systematically collected – so I am forced to use data on total household debt (including credit cards, car loans etc.). Even then, the correlation is obvious (for the technically minded, the correlation coefficient is 0.6).

1523330433087.png
The US does publish data on mortgage debt, and there the correlation is an even stronger 0.78 – and standard econometric tests establish that the causal process runs from mortgage debt to house prices, and not vice versa (the downturn in house prices began earlier in the USA, and was an obvious pre-cursor to the crisis there).
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None of this would have happened – at least not in the UK – had mortgage lending remained the province of money-circulating building societies, rather than letting money-creating banks into the market. It’s too late to unscramble that omelette, but there are still things that politicians could do make it less toxic for the public.

The toxicity arises from the fact that the mortgage credit causes house prices to rise, leading to yet more credit being taken on until, as in 2008, the process breaks down. And it has to break down, because the only way to sustain it is for debt to continue rising faster than income. Once that stops happening, demand evaporates, house prices collapse, and they take the economy down with them. That is no way to run an economy.

Yet far from learning this lesson, politicians continue to allow lending practices that facilitate this toxic feedback between leverage and house prices. A decade after the UK (and the USA, and Spain, and Ireland) suffered property crashes – and economic crises because of them – it takes just a millisecond of Internet searching to find lenders who will provide 100% mortgage finance based on the price of the property.

This should not be allowed. Instead, the maximum that lenders can provide should be limited to some multiple of a property’s actual or imputed rental income, so the income-earning potential of a property is the basis of the lending allowed against it. A hypothetically sustainable level is where the maximum debt secured against a property would be ten times the annual rental income, so a property rented for £20,000 a year would have a maximum loan amount of £200,000.

Given that gross rental yields in the UK are between 4-6% (see: http://www.cityam.com/266735/uk-house-prices-best-and-worst-areas-buy-let-investments-uk), the price for such a property would fall into the £300,000-£500,000 range – with a maximum mortgage to price ratio of 67%, rather than the current 100% or more.

The main function of such a rule would be to break the reinforcing cycle between debt and house prices that has given us globally over-valued housing and over-indebted households. Today, when two buyers compete for a property with identical incomes, the one who gets the higher level of leverage wins – giving us a strong and perverse incentive to actually want to be in more debt.

Yet things would work very differently under this new approach – in a contest between two identical income earners over a property, the winner would be the one who saved a larger deposit. Of course, such a rule could not be imposed overnight: it would cause a house price crash which would result in a recession that would, in all likelihood, see the policy change reversed.

However, it could be introduced at a higher level (say a 20:1 ratio) and reduced over time – used to transition us from a world in which we treat housing as a speculative asset rather than what it really is, a long-lived consumption good.

This would need to be introduced along with other measures to wean the financial sector off its current role as an enabler of asset bubbles, and back to what it should be: a Servant of society, rather than its Master.

Will it happen? I won’t hold my breath… but the next time politicians say there’s nothing they can do about house prices, suggest this new approach and make them squirm.

PS. You can see more of Professor Keen’s work – and support him – via this crowdfunding site: https://www.patreon.com/ProfSteveKeen.