One of the most influential commentators on housing policy is Dr. Anthony B. Sanders, chief economist at Artesia Economics. Sanders was previously a distinguished professor of real estate finance at George Mason University is a former head of asset-backed and mortgage-backed securities research at Deutsche Bank AG. He has been a sought-after commentator in congressional testimony and in the media, and this week he spends a few minutes in our Person of the Week spotlight to consider the current U.S. housing scene.
What is the state of the American housing market today? How would you categorize it?
In one word? Chaos.
Really?
Yes. Since 2008, nothing has been saying the same since the financial crisis. For all the Feds’ money printing and all the rate gyrations of Yellen and Powell, we’re stuck with very few people putting our housing up for sale. So, the inventory is really low.
Another problem: we have negative wage growth, which is persisting – I think we’ve had 23 straight months of negative real wage growth. That’s not good for housing. House price growth, mercifully, is slowing. But a lot of it has to do with the fact that the Federal Reserve has finally slowed their money growth down –M2 – and now it’s negative growth. Not much negative, but they’ve at least slowed down.
The Fed is about to reverse course and go back to their old horrible ways of zero interest rates and expanding their balance sheet. They didn’t say that, but the Fed Funds futures are all pointing at a reversal. Not a Claus Von Bulow reversal of fortune, for sure, but a Fed reversal meaning that they’re going to start dropping rates again, and that will probably help the housing market – but for all the wrong reasons.
The Fed created an enormous housing bubble. And between the post-2008 quantitative easing and then the Covid monetary blast, they just printed a ton of money and housing prices went through the roof. So, combine that with super high housing prices plus negative real wage growth, and we’ve got a problem.
So, how do we solve this problem?
Well, it’s going to take time. If the Fed just left everything alone for 10 minutes and stopped this rate gyration nonsense, the market will eventually clear and people will start putting the houses up on the market. But it is going to require housing prices to actually fall, which for the Fed is poison – they don’t want that to happen. But it’s got to happen if they want to get people back to the market.
What about new home construction? Is anything being built? Or is it primarily the larger McMansions as opposed to starter homes?
Actually, what’s being built now mostly is apartments. Once again, go back to negative wage growth for 23 months. What we’re building now is a ton of apartments that are not a five-plus-unit start. The single-family starts are low by historical standards.
We are getting some McMansions, which is fully expected. But we’re not building the inventory needed, particularly in major cities. Where a lot of the stuff is happening is out west – we’re actually seeing some price declines. I think the last S&P report on 20 metro areas saw a decline in housing prices over the last month – not year-over-year, but last month. But there’s not going to be enough.
While this is happening, the banking industry is experiencing a tumult that we’ve not seen since the 2008 debacle. Do you see more crashes coming in the course of the year?
The Fed is going to do an about face to try to prevent that from happening and are going to cut rates. But then, that’s what’s going to help stoke further inflation. They’re going to they’re going to try to put the hammer down on further banking problems by letting inflation go up. But when inflation goes up, the banks are going to be in worse shape. I don’t think they can get out of this mess.
Next year is an election year. Is any of this going to be an issue?
Well, other than your reporting, the mainstream media is going to say everything is hunky dory and Trump is evil. But I keep hoping some people are going to start noticing that they’ve created a mega-storm and we’re going to pay the price for it eventually. But I think the administration’s stance at this point is just hold on until the elections over there and then they’re home scot-free.
Photo courtesy of C-Span
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