April Case-Shiller Home Price Index UP 4.9 Percent YoY, Still Over 2X Wage Growth (SF, Denver Rise Over 10%)

Now that financial markets have calmed down after Monday’s turkey shoot about a Greek default, we can focus on “good” news in the US … the Case-Shiller home price index rose 4.9% in April.

(Bloomberg) — Home prices in 20 U.S. cities rose at a slower pace than projected in April, indicating the market was experiencing uneven gains as it entered the busier selling season.

The S&P/Case-Shiller index of property values increased 4.9 percent from April 2014 after climbing 5 percent in the year ended in March, the group said Tuesday in New York. The median estimate of 31 economists surveyed by Bloomberg called for a 5.5 percent advance. Nationally, prices rose 4.2 percent.

A pickup in sales as the job market improves and younger Americans start venturing out on their own means gains in home prices will probably accelerate as demand outstrips supply. Rising residential real-estate values will, in turn, help owners rebuild equity and spur builders to take on more projects, leading to increases in spending and investment that will give the economy a boost.

“There’s no reason to think home prices won’t continue to rise at a decent clip,” Joe LaVorgna, chief U.S. economist at Deutsche Bank Securities Inc. in New York, said before the report.

Say it ain’t so, Joe!

Here is one reason that home prices may NOT rise at a decent clip (whatever that means). Home price growth is still over twice as high as wage growth.


Home prices have been sizzling despite stagnant wage growth with The Fed’s 3rd round of QE.


San Francisco and Denver are both growing in excess of 10% YoY. Washington DC is the slowest growing metro area at 1.1% YoY … behind Cleveland at 1.3%.


Think what would have happened to Cleveland if they had WON the NBA championship!

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Simply UnAffordable: Rent CPI Grows At 2.89 Percent (While Earnings Grow At 2.40 Percent)

The late singer said it best about US housing: simply unaffordable.

The latest CPI report puts residential housing growth at 2.89% for May. Too bad average wage growth is less at 2.40%.


And the shelter CPI index has been greater than earnings growth since 2012, the advent of The Fed’s QE3.

We also saw a spike in home price growth starting in 2012 as well, although residential loan growth is only now reaching 0 percent growth.


And unless you live in rural Wyoming, there is a good chance that you are a renter with increasing cost burdens.


Simply unaffordable.


Housing Starts Decline 11.1 Percent In May, 5+ Unit (Multifamily) Permits Rise 26.02 Percent!

Well, it’s been over 9 years since The Federal Reserve raised the Fed Funds Target Rate.


And housing starts are still below 1994 levels. The reason? Real median household income and average wage growth remain below pre-recession levels..


With the pathetic wage growth “recovery,” we would expect lots of 5+ unit (multifamily) to be built and less 1 unit detached.

Today’s numbers are no surprise. Housing starts are down 11.1% MoM in May.


But look at the permits for 5+ unit housing! They are up 26.02% in May!

Yes, this is Sgt Yellen’s Lonely Mortgage Borrower Club Band!


UK Housing Market Grossly Over-inflated By Low Interest Rates (Central Bank Stimulus)

There was an interesting article in The Telegraph about the unaffordability of UK home prices. The author attributes high UK home prices to low interest rates.


London, the most expensive housing market in the UK, seeing a large drop in YOY asking prices, Apparently, foreign investors are losing interest in London staggering home prices.


The UK, like the USA, has seen an explosion in house prices since 2012 coinciding with the massive stimulus from Cental Banks.. But low interest rates have not helped Spanish or Japanese house prices, Both are continuing to fall or have leveled off.


Low rates have not stimulated UK mortgage approvals or US mortgage purchase applications. .Its more of a lower income problem since 2007 … and less risky loans being originated (at least in the USA).


Younger households can always rent, but even Jeffrey Lebowski’s bungalow in Venice California sold in 2012 for $1.59 MILLION!

I wonder if that price included the rug.


The Failed Middle Class Housing Recovery In One Chart (Maybe A Few More)

True, house prices have been rising across the USA since the housing bubble burst. But the “recovery” has not been equal across income levels. The wealthiest Americans are doing quite well, but America’s middle class has not recovered.

Something happened in late 2008 that has skewed the recovery towards the wealthiest Americans. In part, it was the massive ,monetary intervention policies of The Federal Reserve. In addition, there has been a philosophy in Washington DC of managing the economy through regulation and non-growth policies. For example. the Brookings Institute has a study documenting the decline in business start-ups.


The result of The Fed’s massive intervention in financial markets coupled with government policies favoring one group versus another (see George Stigler’s regulatory capture) has resulted in corporate profits after tax growing substantially since 2009 while wage growth is less than half of corporate profit growth.


As you can see in the above chart, hourly wage growth is less than half of what is was in 2007 while corporate profit growth is over twice that of hourly wage growth … and substantially higher than it was in 2007.

The result has been malaise in mortgage purchase applications.


While the housing market has improved in terms of price, it has been a slow recovery for the middle class.

But as a consolation prize, the middle class can be a “Lebowski Achiever.”

Lebowski achiever_0