Despite a rise in the prices of existing and new homes to pre-housing crash levels, new home sales in the United States remain mired at levels below those in the 1960s and 1970s when the population was approximately 40 percent smaller. Existing home sales have improved but remain far from the 2005 peak.
There is an Austrian School of Economics tenet that states that one danger of artificially low interest rates is that they “trick” entrepreneurs into making “malinvestments” — investments that, in retrospect, don’t make any economic sense had the entrepreneur not been tricked by the “false signal” sent to him by the artificially low interest rates set by the central bank.
Last December, the Federal Reserve raised interest rates for the first time in ten years. The last time the Federal Reserve raised interest rates the housing bubble of the 2000’s popped, setting off the worst housing market since the Great Depression.
Last week, the U.S. Bureau of Labor Statistics released its non-farm payroll (NFP) report for October. The report showed 271,000 new jobs created surpassing expectations by about 90,000. The unemployment rate was reported to be at just 5 percent.
The most recent data regarding new car and home sales indicate that dynamic remains the same. New car sales were up 13.6 percent in October year-over-year and are approaching an annual record, while new home sales were down 11.5 percent in September and are at near all time lows.
When Janet Yellen was first appointed to the Chair of the Federal Reserve, we noted that Janet Yellen was a supporter of negative interest rates. In “Janet Yellen and negative interest rates” we republished her 2010 comment in support of negative interest rates: “If it were positive to take interest rates into negative territory I would be voting for that”
The homeownership rate is down. New- and existing-home sales remain far below their 2005 peaks. Housing starts for single-family homes are flat. What went wrong?
U.S. individual bankruptcy filings are at multiyear lows, as are delinquencies and the percentage of consumers in collection. After the Internet bubble burst in 2000, individual bankruptcy filings increased from 2001 and peaked in 2004 at 1.65 million before bottoming out in 2007 at 695,575.