How Do Manipulated Housing Markets End?

Fritz Pfister
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Posted: Mar 29, 2013 12:01 AM

Out here in flyover country there appears to be a tug of war between the Titans, Bernanke and Obama with average Americans stuck in the middle.

Bernanke seems to ignore the inflationary hazard of monetizing the debt purchasing Treasuries, and mortgage backed securities by printing $85 billion monthly from thin air. This is known as QE4.

Combine QE4 with Bernanke’s ZIRP (zero interest rate policy) and we discover mortgage interest rates have fallen below 4 percent in only 15 months dating back to 1971. The preceding 15 months according to NAR President Gary Thomas.

Without these extraordinary actions the housing market may not have a pulse. Growth in home sales or prices isn’t due to any improvement in the job market or because the average American is getting pay raises.

Instead the cheapest money on record has drawn pent up demand to the market accounting for the majority of home sales.

This has resulted in the following headlines:

Forbes: Home Prices Growing As Fast As Before The Housing Collapse: Case Shiller. (Doesn’t that cause you pause?)

USA Today: Home prices jump, but new home sales decline.

Reuters: Lean Inventories hold back pending sales. (Really?)

Business Insider: Existing Home Sales Rise 0.8%, Prices Rise 12th Straight Month (Sounds great!)

As reported in the Forbes article TownHall contributor Peter Schiff of Euro Pacific Capital, believes “a housing collapse is in the cards as the Fed will eventually have to exit its accomodative stance”.

Forbes continues with Baird of Plante Moran stating in part, “improvement in housing is still viewed as a key bellwether indicator of the impact of the wealth effect, the health of the consumer sector….it seems to point to a continued modest expansion, and an economy that is neither falling off a cliff nor firing on all cylinders”.

Then there is Charles Hugh-Smith Of Two Minds Blog posting at ZeroHedge- Why The Government Is Desperately Trying To Inflate Another Housing Bubble. In essence to save the too big to fail banks (TBTF).

That leads us to Obama tugging in the opposite direction of Bernanke. While Bernanke takes these extraordinary steps to build a fire in housing, Obama’s mission to concentrate power in the federal government rains on the embers.

Hugh-Smith is right, the big banks own the political class as the Dodd-Frank monster codified TBTF, however in the power grab for the state to control lending, Obama has created numerous obstacles for financing home loans and providing credit to the small home builder.

All the great news about rising home prices (although 30% from the peak from where we don’t want to fall from again) creating a wealth effect is an overstatement, because consumer debt remains double that of 2001.

If housing is building a wealth effect, millions are no longer under water, and the middle classes largest store of wealth is in their home, what explains the crash in consumer confidence to 59.7 that stunned the experts?

The Confidence Board’s Lynn Franco effectively blamed the sequester for causing uncertainty for consumers. Since when did the Confidence Board become a subsidiary of Team Obama?

Lynn did you consider any of the following that may have caused consumer’s to lose confidence other than some contrived political mechanism for Obama to extort more taxes from the private sector?

Falling wages, perpetually high unemployment, the high costs of necessities like gas, food, and health care? Each the result of Obama policy.

This is where Obama tugs harder than Bernanke. The Obamacare disaster is unfolding before our eyes with reports this week that health care costs will increase 32% due to Obamacare mandates, that will ‘probably’ drive insurance premiums higher. Do you think so?

On the one end you have Bernanke risking inflation as no other Federal Reserve Chairman in history to save TBTF Banks by sparking recovery in housing, with Obama pulling the opposite direction with his ideological agenda.

Who is stuck in the middle? You, the average American, the middle class. You are the economic cannon fodder for the TBTF Banks, and Obama’s anti-capitalist fundamental transformation of America.

Whether Schiff who believes the glass is half empty, or Baird who believes the glass is half full will be proven correct will depend upon who wins the tug of war between the radical measures taken by Bernanke, and the radical ideology of Obama.

I’m siding with Schiff. All the good news headlines you read about in housing are the result of government manipulation. There is nothing organic or permanent about this pseudo recovery. Once Bernanke is forced to end QE or ZIRP game over. Obama wins, you lose.

Didn’t we just learn a huge lesson regarding government’s manipulation of the housing market in 2008? What makes you think this time it will end differently?

The opinions expressed here are solely those of Fritz Pfister or identified sources, and not necessarily those of RE/MAX Professionals of Springfield or RE/MAX International.