Sunday , July 25 2021

The current bladder may take 2 paths on this chart – one is more restless than the other

So when will the Federal Reserve buy millions of homes?

Assuming the answer is "not", says Charles Hugh Smith from the "Two Minds" blog, prices will be heavily affected throughout the country.

The latest data would hardly undermine its bleak prospect.

S & P's CoreLogic Case-Shiller 20-city index shows that house price growth is stopping. Gauge rose 0.2% in December vs. November and 4.2% in the previous year – the slowest annual growth rate since 2014.

Read: Why the bubble-age mortgages are a catastrophe waiting to happen

Smith says the bursting bubbles tend to follow a symmetrical reversal in terms of the length of time and the magnitude of their initial rise.

"If the bubble took four years to swell and increase with X, the repetition tends to take approximately the same duration and tends to track the lot or the whole X," he writes.

He uses this table of the Case-Shiller housing index as an example:

Smith explained that the Federal Reserve, by lowering interest rates to almost zero and buying mortgage-backed securities, did not allow the first bubble to move along its path. This time, however, "there is no more savings in the Fed's locker," he warned, adding that this fall would begin this year and end around 2025.

But what time will it take?

Smith said the more realistic analysts there would at least agree some Reducing prices is an opportunity and it will look like the softer scenario.

But now he sees it.

"There is a good case for Scenario 2, where the price falls below the 2012 levels and continues to go, eventually changing the overall home-floor balloon gains of 2003," he said, outlining several factors, such as large student debt, insufficient income to support nose prices, Chinese buyout, and so on.

"The economy has changed, and the sacrifices needed to buy a house on hot markets at today's prices make no sense," Smith concluded. "The only question of real interest is how low prices will go down by 2025. We are so accustomed to surprise that we have forgotten that we can surprise and down."

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