Since the financial meltdown in 2008 we have shared that the key to any economic recovery would be the housing market. The key to a recovery in the housing market would be job creation maintaining and adding demand for homes.
Rising from the ashes to a modest recovery, jobs remain the key to housing. The problem is the recovery has been based upon fleeting and temporary influences and not upon solid, identifiable organic growth through natural market forces. The entire recovery has been predicated upon the massive printing of money propping up the stock, and housing markets.
The Federal Reserves quantitative easing and zero interest rate policy has benefitted Wall Street but not working families. The zero interest rate policy has drawn major Wall Street firms to invest in not only stocks with their free and fiat money, but also massively into housing. Hedge funds using their bounty from the Fed printing presses have artificially driven up prices in the Case Shiller 20 city index creating another housing price bubble.
In fact the Fitch credit ratings agency released a warning this week. Fitch has a new report blasting the “unsustainable” jump in home prices, adding that “the extreme rate of home price growth is a cause for caution.” While they note, rising prices are a positive indicator for a recovery, Fitch adds that unprecedented home price growth should be pairedwith economic health that is similarly unprecedented, the evidence forwhich is lacking in this case.
Based on the historic relationship between home prices and a basket of econometric factors, Fitch estimates national prices to beapproximately 17% overvalued in real terms as “speculative buying, notincreasing demand” is driving the market. Between this ’speculation’ and interest rates, affordability is “strained.”
The high rate of home price growth is not considered to be sustainable. Based on the historic relationship between home pricelevels and the primary drivers of supply and demand in the market, there is a misalignment. (ZeroHedge)
Home construction remains depressed. New home construction is a primary driver of job growth, so it is not surprising that unemployment remains perpetually high.