Fannie seemed like a good idea during the Great Depression, when real estate construction came to a halt and land values collapsed. But like other New Deal measures, it treats symptoms rather than confront causes. We need to get rid of the three housing stooges and let the free market handle mortgages. But to have a truly free market in real estate, the government has to eliminate the taxation of human action and its products, and stop its fiscal subsidy of landowners.
It appears as though North American markets are finally beginning to discount the inflation risks within our seemingly Rocky Balboa economy. No one wants to be the first guy on the block to raise prices, but time is running out. Companies are finding it harder and harder to increase profits without raising prices. A good measure of inflation in the economy and one subject to less speculation are long government bonds. The bond market is giving central bankers the benefit of the doubt and is accepting of the "inflation remains contained" mantra. Should inflation surprise on the upside, a crash in long bonds will be the case. Inflationary pressures are not as bad as feared, and that the Fed might not need to raise rates and go neutral with a Hawkish Watch for now. Some economists have staked their professional reputations on being dark-horse skeptics; are predicting nothing short of a global economic apocalypse. Others take from the real estate industry and scoff at such dire visions. Don't listen to the doomsayers, they say, "We're in for a soft landing." IMO there is only a Hard Landing.
Could Chico home prices be about to fall? If you look at the inventory on the multiple listing service, you might think so. It's up about three times over last year with around 277 homes on the market. This week there were more homes offered on the MLS than at any time all year.
The stock market is jittery and it's taken a beating recently over inflation woes that are leading us ever closer to higher interest rates. Now toss in the sky-high gasoline price and it stands that sooner or later this absurdly high average of $220 per square-foot will have to come down hard. If homes are not selling right now, what choice do sellers have?
Earnings have grown at double-digit rates for 11 consecutive quarters but are now expected to slow to eight or nine percent for the remainder of the year. This may not be sufficient to maintain some of the higher price/earnings ratios. Coupled with fears of further rate hikes, Wall Street may have an unspirited summer. |
