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Originally published by Seth Mason of ECOMINOES

Investors are once again throwing cheap, Fed-provided capital into real estate, promoting price increases and inflating a new housing bubble.

If the “recovery” in the housing market were legitimate–i.e. if it were a function of an expanding economy and consumers were driving the market–one would expect the number of mortgage applications to be increasing. An increasing number of mortgage applications would be a natural byproduct of more Americans are getting hired, earning more, and buying houses.

But, of course, this isn’t the case because this isn’t a recovery.In reality, the number of mortgage applications has been shrinking, both in real terms and in terms of year-over-year change:

Housing Recovery? No, Housing Bubble 2.0 - Mortgage Applications

But the shrinking number of mortgage applications hasn’t stopped investors from partying like it’s 2005:

Housing Recovery? No, Housing Bubble 2.0 - Home Prices
The new housing bubble will either continue to expand and eventually burst a la 2008, or it will decompress like a whoopee cushion if the Fed “tapers off” the liquidity pumping too quickly.

The market wouldn’t be destined for one of these less-than-ideal outcomes if the “recovery” were based upon consumer demand instead of money created out of thin air and artificially-low interest rates.

 

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  • Karen.in.Texas

    And the rich get richer buying the foreclosed homes,to rent or sell at much higher prices to the consumers, that cannot get the loans due to bad credit created die to layoffs and being unable to find work that will pay for said housing. Too big to fail financial institutions need to NE broken up now, so lending can go back to rural banks, where lenders know the borrowers on a more per

  • coniljw

    Home building has skyrocketed in Philadelphia, PA, as the gov’t is tearing down old buildings/homes/row homes that the welfare recipients have been living in for generationsand building them new homes/apts. We the tax payers are paying for the housing boom for the poor folks. Not that I don’t want poor folks living in nicer places but they have a tendency to tear them up, rip out the toilets, turn the neighborhood into drug buying zones, trash up the neighborhood while watching the trash blow around their feet while they sit on the stoops while their many kids play.

  • websmith

    Waiting for dinner, I listened to some bubbly realtors recently. They believe that there is some amazing unidentifiable justification.It didn’t work before so they are trying again and expecting a different result.