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