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.

1 comment:

  1. Ask yourself -- why in the hell would the US government do such things?

    Are they stupid? Of course not

    Are they corrupt? What is the point of someone making a few billion more when these policies are going to tear the entire system down. So no - no more than usual.

    What do they fear so much that would force them to do the same things that sunk the global economy in 2008?

    Keep in mind when reading this that Prebon 'provides energy analysis to investment and commercial banks' - you do NOT put that report in front of Goldman Sachs or JPMorgan unless you are damn sure of your conclusions.


    THE PERFECT STORM (see p. 59 onwards)

    The economy is a surplus energy equation, not a monetary one, and growth in output (and in the global population) since the Industrial Revolution has resulted from the harnessing of ever-greater quantities of energy. But the critical relationship between energy production and the energy cost of extraction is now deteriorating so rapidly that the economy as we have known it for more than two centuries is beginning to unravel.

    http://ftalphaville.ft.com/files/2013/01/Perfect-Storm-LR.pdf


    HIGH PRICED OIL DESTROYS GROWTH

    According to the OECD Economics Department and the International Monetary Fund Research Department, a sustained $10 per barrel increase in oil prices from $25 to $35 would result in the OECD as a whole losing 0.4% of GDP in the first and second years of higher prices.

    http://www.iea.org/textbase/npsum/high_oil04sum.pdf


    Even oil at 80 bucks is too high --- it remains a huge drag on growth --- and it also discourages new exploration (Big Oil was slashing capex at $110...)

    The central banks are in a life and death battle --- that they will lose. And when this game ends -- civilization as we know it --- ends.

    ReplyDelete