Just as in China, America- through monetary tightening and tax policy- is fighting a housing bubble. In an environment of stagnant wages and rising interest rates and house prices out of whack with incomes, the government is secretly fighting a war. Pervasively low borrowing rates for years, which has not only encouraged home buyers, but has also encouraged investors from the U.S., China, Russia, and many other nations to buy homes as investments, has caused an enormous bubble to form. Another major contributor to this bubble is commercial real estate. No- not the price of commercial real estate- but the deflation in retail and office space due to technology, e-commerce and the office sharing movement, respectively. Because of value deflation from oversupply and under-need in retail and office markets, investors and builders have turned to residential investments as safer bets. This has pushed home prices too high and caused too much residential construction. Rate hikes and stagnant wages will cause a fast decline- soon.
Former Chairpersons Janet Yellen and Alan Greenspan have both acknowledged existing asset bubbles, generally. Chairman Powell, however, in his recent testimony to Congress, specifically denied a housing bubble. He is not wrong- he is just being deceptive. He is managing the problem- in the same way that financial analysts and traders refuse to mention the potential housing crisis for fear of causing a panic and another economic collapse. Real estate is the only asset class that Chairman Powell specifically said is fairly valued. Since when does a Fed Chairman give his analysis of a specific asset class like real estate? Oh- right- Alan Greenspan said the same thing in 2006. Hmm. I’m dubious when the Fed Chairman makes a point of mentioning that real estate looks all clear.
Rising interest rates, despite a lack of notable or noteworthy inflation, in concert with tax policies that are unfriendly to real estate, are taking hold and affecting housing markets … quietly … as the Fed barely mentions the “b” word (bubble), while one clearly exists.
Denial is not a river in Egypt- it’s a concerning stream of consciousness.