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Tuesday, October 28, 2014

Four Straight Months Of U.S. Home Price Declines

The Case-Shiller home price index data was released this morning showing a month over month seasonally adjusted decline in home prices for the fourth month in a row.


Robert Shiller discusses the data with CNBC below noting that while the American dream is still to own a car and a home, there is a lot of common sense in support of renting and taking public transportation. 

It must be difficult for readers of this site outside the United States to try and figure out why a government would provide unlimited subprime auto loans, unlimited subprime student loans and unlimited subprime housing loans (Fannie Mae and Freddie Mac are already working on a new 3% down program for "less qualified" borrowers).

The answer is simple. The more debt the government has issued (so far) the lower interest rates have gone and the more demand there has been for U.S. government debt. Supply/demand and quality no longer matter, just like it did not matter for U.S. subprime mortgages from 1997 to 2007.

Then one day psychology changes and the world collectively realizes they are holding a mountain of toxic waste on their balance sheet that will never be repaid. Until that moment arrives, keep the party going. Get ready for zero down subprime auto, student and housing loans in the years to come.