One measure of the effectiveness of Fed interest rate policy is the disparity it creates in terms of home prices relative to median family income.
As a reminder, The Federal Reserve started lowering their Fed Funds target rate in September 2007, then followed with asset purchases in late 2008 (known as quantitative easing or QE). The third round of QE was announced in September 2012 under Chairman Ben Bernanke.
Janet Yellen, the current Federal Reserve Chair, continued her predecessor’s policies.
To what end for American families?
Here are charts for several bubble state cities showing rising home prices since 2012 and declines in median family incomes.
While not a bubble state or city, Detroit has a similar chart.
The common theme among these bubble state cities is the rise in home prices along with declining median family incomes.
I hope that The Fed in the future considers the damaging distortions in markets that it creates through its policies.
The Miami housing market reminds me of the TV show Dexter. That is, all is calm on the outside, but a killer is lurking on the inside.
The killer? Miami home prices have been rising since 2012, but median household income has been falling.
Yes, Miami is the “Dexter” of housing markets.
The National Association of Realtors released August’s Existing Home Sales for August. Existing home sales were down 4.84% for August.
This was the second worst decline since 2011 and the biggest plunge in 7 months.
Existing home sales are back to 2001 levels.
The median sales price for existing home sales fell slightly, but remain inflated compared to real median household income.
The biggest plunge was “way out west” where EHS fell 7.75%.
O-ho the Wells Fargo Wagon isn’t a-comin’ down the street, Oh please let it be for me! (not if your FICO score is too low!)
According to American Banker’s Kate Berry,
Wells Fargo is raising minimum credit score requirements on Federal Housing Administration loans, part of the ongoing jockeying by large banks to limit lawsuits by the Justice Department for defective FHA loans.
John Shrewsberry, Wells Fargo’s CFO, said Wednesday that the San Francisco bank will not make loans to FHA borrowers with low credit scores because of their higher rates of default.
“We will be adding back the credit overlays so we make fewer loans that are close to [the FHA’s] most accommodative end of the credit spectrum,” Shrewsberry said at the Barclays Global Financial Services Conference in New York. “Those are the loans that are going to default and those are the defaults loans that we’re going to be arguing about 10 years from now and we’re not going to do that again.”
Actually, I testified in the House or Senate that I was surprised that banks were still originating mortgage loans since you get raked over the coals … if the borrower isn’t clothed in AAA-armor coated with gold. And the mortgage isn’t something that is disdained by regulators, like the CFPB.
Richard Cordray, Director of the CFPB, is taking credit for the success of the housing market.
This is success? Lowest new home sales (adjusted by population) and crashing homeownership rates?
Perhaps Cordray can record “76,000 regulations.”
Is restricting mortgage designs and the supply of credit the same as “success?”
One begins to wonder if the Federal government has adopted a policy of renting rather homeownership. It sure seems like it.
Since the peak of the housing bubble, renters has skyrocketed.
And largely the growth in single family residences (SFR) being rented.
New homes sold as a percentage of the population is back at 1982 levels.
Well, I doubt if rentership is the formal Federal housing policy. It just seems like it. But the CFPB’s Richard Cordray takes credit for the housing market success!!!
Here is a video of HUD Secretary Julian Castro trying to figure out Federal housing policy.
Some economic recovery.
Initial jobless claims were lower than expected (264k vs 275k expeected). But wage growth remains stagnant.
Meanwhile, Janet Yellen and The Fed are like Hawaiian crooner Don Ho on steroids blowing BIG BUBBLES.
Sing along with Don Ho! “Big bubbles, in the economy. Makes Janet feel happy, makes her feel fine.“
How much should a young household pay in rent? A rule of thumb is about 30% of gross pay.
Well, rents are simply unaffordable in several US metro areas such as Los Angeles, San Francisco, New York and Miami.
According to a Zillow study, Chicago, Dallas, Houston and … Washington DC are around the 30% threshold.
Like the rest of the population, young households have seen declining homeownership over recent years.
Slow wage growth and rising home prices are making homeowership and renting more expensive despite historically low mortgage rates.
Either wage growth has to rise or home prices will have to slow or drop like they are doing in Washington DC, New York, Los Angeles, Chicago and … Phoenix?
Dcotor, doctor (Yellen), here is the news. We’ve got a bad case of unaffordable housing.