charleshughsmith.blogspot.com / CHARLES HUGH SMITH / MONDAY, JANUARY 13, 2014
Central Planning pushing housing prices higher is not win-win–it is lose-lose-lose.
The Status Quo views real estate bubbles as a “good thing”: as home prices rise, the homeowner’s collateral (equity) rises, creating both a psychological “wealth effect” (now that we’re richer, we can afford to borrow and blow more money) and a temporary (and thus phantom) increase in collateral that will support more household debt.
What few seem to realize (or discuss) is how rising home prices push rents higher.This is an entirely pernicious effect, as renters aren’t getting any more “home” for the higher rent–they’re paying more money for the same shelter.
The standard-issue financial pundit (SIFP) has little interest in rents other than their role as income streams that support higher valuations for real estate investment trusts (REITs) and other tradeable real estate securities.
Rising rents reduce the discretionary income of renter households; since incomes have been declining in real terms for 90% of U.S. households, paying more rent leaves less income for everything else.
The Federal Reserve and the financial sector pay little attention to the 1/3 of households who rent; their focus is on the 2/3 who (at least nominally) own a home.