Americans bought 644,000 new homes last year, the government said Thursday. That was the fewest since 2018. The 16.5% drop counted as the largest annual decline since 2009. The monthly data showed new home sales rose a third month in December, a respite of sorts after a very challenging year for housing. The 616,000 annual pace was better than the 612,000 rate consensus expected. The figures came a week after data showed single-family housing starts likewise fell the most last year since th
12 thoughts on “Potemkin Village”
Good post, America as Poetmkin Village has been a fact since the early ’00s.
My uncomfortable thought exercise about the Fed has led me to a natural conclusion about where this current round of tightening ends and why. It’s been said that when the Fed says they need to get inflation down meaningfully, they aren’t just talking about core but specifically, housing. Housing, to your point is now in decline, thanks to the actions the Fed has taken so far. However, to get housing down to a reasonable cost, that’s going to force people into a position where they have to sell at a level that is considered reasonable. That requires a similar scenario to 2009, with homeowners taking it on the chin to protect banks. I’ve also read that the Fed has signaled a desire to get out of MBS’s altogether, that would remove some significant liquidity from residential housing.
I see this playing out like thus. The wage price spiral forces more and more layoffs. Those layoffs reduce open positions to get unemployment back up over 5%. Those newly unemployed are forced to sell their recently purchased homes either at significant loss or foreclosure. The newly abandoned homes flood the market but find few buyers with rates high, unemployment up, and uncertainty about the future. Rental homes increase and eventually average home values hover where they belong leading to easing by the Fed but now fewer buyers have access to mortgages because they are relying on private money to buy the mortgage at a higher cost.
The middle class loses again, the 1% climb further up the ladder.
I read something I can’t put my fingers on now — perhaps it was even here. But with the super wealthy already owning a ridiculously outsize proportion of our stock and bond markets, and thus the businesses underlying them, and with a toothless estate tax, there just isn’t much more wealth left to “transfer” to the super rich. They’ve got the art, the jewels, the land, the water, but the only assets of significance that the non-rich (collectively) have yet to transfer to their wealthy counterparts is their houses. But now even that transfer appears to be gaining momentum, especially as newly-minted corporate rentiers busy themselves turning what used to be owners in this economy into future lifelong renters.
At the same time, the safety nets of Social Security and Medicare are under attack under the guise of fiscal rectitude, which usually translates into cutting taxes (especially now that the pesky Child Care Tax credit has been done away with). Sorry kids. You can dream of owning a home someday, but the real American dream is being unsure exactly how many homes you have or where one of your yachts may have drifted off to.
The reality is that more houses have to be crammed into more limited space. The US population has grown by tens of millions of people every decade for more than a century while family size is shrinking. More people have also been moving to cities which also happens to be where the higher paying jobs are. The existing residents of those cities are happy to throw up barriers to building housing. Housing supply can’t keep up with those dynamics, so we see spiraling home prices and increased density (where it’s allowed).
My bet is we’re going to see the housing market bounce between a low-volume, “rampant dispersion” deep freeze and a high-volume, rapid appreciation rollercoaster. The ingredients for a major correction aren’t there. Between all the equity existing owners have (aside from a relatively small part of the market that bought recently), the quality of buyers, and pent-up demand, don’t be surprised if prices reaccelerate with even modest decreases in mortgage rates (I think 5% is the magic number).
For prices to drop materially, the Fed would have to be in a spot where they were forced to keep raising rates while watching the economy get crushed. It’s not out of the realm of possibility, but it would take a huge new stagflationary shock.
USA as a Potemkin Village is the expected (and arguably the desired) outcome of the Reganomics. This outcome was by design and intentional. We have achieved the Republican hellscape. Congratulations America!!!
I hear that Vermont and New Hampshire have some nice areas and possibly Maine. If you can afford to go south foe the winter might be the best of both worlds.
Coastal living, city life, exclusive suburbia used to dominate the froth. Now it is everywhere. Can you say interest rate suppression over an extended period. A house is a good place to live for most. It’s evolution into the kind of asset it has become is probably not a good sign.
Little Pink Houses / For you and me.
Ain’t that America somethin’ to see?
Given how much I know about you ( 🙂 ), I think you might need to think outside the box for your next real estate purchase. Even if you are a “Carolina boy” at heart, you might appreciate (and benefit from) a complete change of scenery with your next home purchase. As in the mountains, and ideally situated near a river or stream, with a sunny and dry climate- where you might actually ‘need’ a sweater and a firepit on a clear summer night while star gazing and listening to nature.
There are some amazing homes outside of Ketchum, Missoula, Boise, etc. all in your price range- or just a “little bit more”!
A 5 minute search found this:
And trust me, cross country drives can be an adventure all in themselves.
Renting has made me feel like a second class citizen in my area and I have decided not to wait for any bubbles to pop, but plan on purchasing a new home this year in a walkable to and fro downtown area.
Lawrence, KS – a blue bubble in a red state; Jayhawks basketball; according to a close relative high up in the the global climate scene we’re in a sweet spot in terms of severe weather from climate change; and no, not the fields of wheat and corn of lore but gently rolling hills and oak-hickory woodland 🙂