Housing affects so much in our economy. There’s the construction wages and GDP revenue from supplies for new houses. Plumbing supplies, roofing, carpet, lumber, insulation and a myriad of other items that now go into a new home touch a great many industries. Then there’s the resale market with increasing prices helping normal folks build some net worth to help with their later years. More net worth means long-term increased ability to spend discretionary dollars.
This part of the economy is starting to flutter a bit.
source: Bloomberg by way of Zero-Hedge
In the 2008 real estate debacle extremely easy, government enabled subprime mortgage availability and a bubble that finally burst. Ever since then, real estate has been on a steady increase from the lows.
I’ve been watching this latest bubble as home prices have picked up steam in several areas of the country. Places like Vegas, Phoenix, Tennessee, North Carolina, Georgia, Florida and Texas have an inflow of a lot of escapees from higher tax, more government states like New York and California. The prices in Phoenix here where I live are getting insane. The graph is from 2018, but based on what we are seeing here in Phoenix and with the effects of many state governments clamping down on their citizens with COVID rules, I have to believe this trend is only increasing.
This can’t economically keep up at this pace. You will simply price houses out of the realm of the average household. I’ve been short bonds for a while which would seem to indicate increasing interest rates. The FED has indicated a tightening or high rates through 2022, increasing the cost of a mortgage. The prices in many places are starting to cause buyers to balk. There’s less people showing up to bid $100k over list price to buy a place. Lumber prices in the futures markets have been limit down the last eight days.
Keep an eye on this part of our economy. If the real estate market catches a cold, the US economy may be bedridden. Stock prices could easily unwind their bubble to the downside as well. But, as usual, when trading, I always recommend not predicting. This Thoughts piece is meant to stimulate, intrigue, perhaps help with personal decisions, but not as trading advice meant to induce you to buy or sell. Enjoy the Ride!
Do financial institutions still exchange CDO's like they did before the global financial crisis or was that put to an end ?