This chart on housing is a big deal
I am very much in the camp of people resisting all of the bubble talk – whether it’s on stocks, housing or what have you. In the aftermath of two major bubbles in stocks and housing, every time you get some froth in one market or another, a chorus of pundits declare it’s a bubble. I lean very heavily against that kind of psychology.
Fully 70% of the psychology for buying houses is now driven by low rates – low mortgage rates at 37% and rising prices at 33%. This is crazy. John Carney tells us that not only are homes now growing increasingly less affordable, but the psychology of the US housing market is changing to one of the fear of being priced out. People are now falling all over themselves to buy houses because they think prices are running away from them. And literally a year or two ago, the psychology was almost exactly the opposite. Wow. Frankly, I can’t believe we are here again, but we are.
I wouldn’t call this a bubble, to be sure. Nonetheless, the Fed is starting to have some serious headwinds to fight against in taming animal spirits. I don’t know how they manage this while trying to prop up the economy with monetary policy. It’s an impossible task.
I will have a lot more to write on this issue because the next Fed statement on September 18th is going to be very important. Watch for my coming posts on the issue.