Housing Bust 2.0 is Here Courtesy of the Fed
Anyone who believes that housing is back in a big way needs to take a look at homebuilder stocks.
Here’s DR Horton (DHI) which is down over 30% from its recent highs. The same can be said for Pulte Homes (PHM)
The problem with the housing industry was and remains the Fed. By keeping interest rates at zero and giving institutions access to various lending windows, the Fed gave large financial firms like Blackrock to opportunity to snatch up tens of thousands of homes.
This has put a false floor beneath housing prices. Historically, housing busts in the OECD countries last 6-7 years peak to trough. But by giving certain players in the market (institutions) the opportunity to buy up vast swaths of homes, the Fed didn’t allow this natural process to take place.
The end result is that housing is once again unaffordable for most folks. Prices are surging across the board at the precise time that mortgage applications are collapsing (in part based on the rise in rates and based on housing becoming too pricey).
Sounds like 2007 all over again, doesn’t it?
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