by Lee Adler, Wall Street Examiner
Last week we saw clear evidence of raging inflation in the bubble in existing home sales. But (recovery) it ain’t, in terms of the single family housing development industry. While builders have expressed that they think the market is doing just great, the truth revealed today in the Commerce Department’s new home sales data for June is that the market is only back to 2008 levels. The market was in the late stages of the housing crash then.
Then we called it a crash or collapse. Today the Wall Street media establishment calls those same levels “recovery.” That establishment seeks to hook you via its use of such propaganda terms. It is critical to look beyond Wall Street’s puffery at the actual data in ways that tell a clear story of what is really going on.
Yes, the direction of housing development is up, but from a minuscule base. Historically, the level of sales activity is terrible. Contrary to the conventional Wall Street wisdom that housing is driving the “recovery,” the housing development industry’s contribution to the economy, while positive, is too small to be significant. Maybe the economists are talking about all those realtor commissions spawned by the bubble activity in existing home sales.
Here are a few charts that reveal the tall tale being told by Wall Street conomists, charlatans, shills, and CNBC bullshitters, that housing is driving the US economic recovery.
Median and average sale prices dropped sharply in June after reaching new all time highs in May. Chartists will recognize this as a pullback to the base breakout which is a classic bullish pattern if the pullback holds around this level.
The price breakout was not supported by sales activity. Sales are rising from minuscule historical levels and are still historically weak. We definitely have housing inflation. Even after the sharp drop in June, prices are still up 7.4% year over year. But we do not have meaningful recovery. This is typical of early stage bubble price behavior, which we’ve especially seen in existing home sale prices jumping by 13%+ per year lately.
Meanwhile inventory remains at all time record lows and the inventory to sales ratio reached a 10 year record low this month, which should provide support for prices to rebound in July and make new highs going forward, assuming mortgage rates remain stable at these levels. At some point, rising mortgage rates will choke off the market. It hasn’t happened yet, and I don’t know where the choke point is. If you do, let me know. You can add your comments below.
Wall Street conomists, charlatans, shills, and CNBC bullshitters have been proclaiming that the housing recovery has been driving US economic growth. The chart below clearly shows that the recovery in single family construction hasn’t happened. Builders have been able to double production from virtually non existent levels to historically extremely low levels without hiring more people. There’s just not that much activity.
While housing is no longer a drag on the economy, the contribution of housing development, at least in the single family realm, can hardly be called material. And what recovery there has been has been totally dependent on the Fed’s–and to a certain extent other central banks’–mortgage rate subsidy. Without artificially suppressed mortgage rates, in effect a subsidy to buyers, this rebound, such as it is, will not be sustained.
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