doctorhousingbubble.com / By Dr. Housing Bubble / 7 Jan, 2014
Many are giddy about the rise in home prices. Yet gains in home prices with no subsequent gain in income are merely a repeat of the previous bubble with a different tune. In the last bubble, the memory has seemed to faded, the impetus for funky loan products came because incomes were not rising and products that offered additional leverage were taken up to mask the growing decline of wages. In the last couple of years, the tinder that lit this latest run came from the Fed’s artificially low rate eco-system. The difference this time is that the gains in home prices largely went tobig investors that now dominate the market. In the midst of all this trading, the home ownership rate has fallen. Household formation for younger Americans is dismal. The economy officially exited the recession back in the summer of 2009 (half a decade ago this summer). So why is housing formation so weak when it comes to younger households if the economy is supposedly booming?
Household formation – Under-performance
There was an interesting presentation made by Andrew Paciorek and was posted over at the Fed’s Atlanta website. The gist of the analysis attempts to examine the math behind the weak growth in housing formation.
First, let us look at the math behind housing formation: