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Tuesday, November 17, 2015

Housing Bubble - Part Deux

The housing recovery without mortgage originations is coming to its inevitable conclusion. The Fed, Wall Street bankers and the US Treasury have been able to increase national home prices by 30%, with 50% to 100% in some bubble markets, using 0% interest rates, a massive buy and rent scheme, withholding foreclosures from the market, encouraging foreign cash buying, and allowing flippers back into the market. In a real free market would home prices go up by 30% while mortgage originations remained flat for the last four years?

Thirty year mortgage rates have been falling for the last 30 years. They bottomed at 3.35% in late 2012. Since then they rose as high as 4.4% in early 2014. They fell to 3.6% by early 2015 and are now hovering in the 3.8% range. Everyone who had a high interest mortgage loan, including those with underwater mortgages, have refinanced to a lower rate. The economic boost to the economy from the lower mortgage payments is over. The Obamacare costs have spent the mortgage payment savings. The combination of declining real household income, overpriced homes, millennials with massive levels of student loan debt, and now rising mortgage rates are putting a halt to this fake Fed recovery scheme.

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