There is a saying on Wall Street, “Bulls make money, Bears make money, Pigs get slaughtered.” Right now, we are in ‘pigs get slaughtered’ territory. The only people buying now are Greater Fools blindly buying because prices have always gone up.
Housing markets, whether they be single family, multi-family, high end, low, end, Class A, Class C, have been distorted beyond all functional recognition, and are decoupling from the natural forces of supply and demand thanks to intervention of monetary stimulus by the Federal Reserve.
High end single family sales are growing, while mid to low end single family sales are cratering. Roughly 30% of US single family sales are cash sales, with increasingly foreign buyers now that the Chinese credit bubble is going ”pop”, and the Greek exit of the EU unfolds.
Multifamily, be they Class A, B, or C are at peak valuations thanks to land value adjusting to years of Fed driven monetary stimulus. In the case of Class C apartments, occupancy rates are at all time highs thanks to falling real incomes and increasingly fewer people able to afford a home.
After six years of Federal Reserve money printing, the result is a Frankensteinian economic monster, riddled with unintended consequences and serving no-one, except those at the very top.
To get an idea of how absurd things have become, have a look at the price chart for the Standard and Poors 500 Index, which serves as a rough barometer of US economic health. Read more…