Government Policies Destroy Middle-Class Home Ownership

Housing Prices Skyrocket – Government Policy Started The Last Bubble 20 Years Ago

Real estate and the owner-occupied housing market have been permanently repriced higher than what the free market would dictate. Over the past 20 years, house prices and rent rates have risen much faster than consumer prices and the disparity is widening. The causes are real and numerous, and unfortunately, we have government policy to thank for much of the mess.

Government incentives get arbitraged into the market causing housing prices to rise faster than general inflation. Last decade’s bubble in house prices can be traced back to the Tax Relief Act of 1997

Thus, we cannot look at simple price growth charts and conclude that housing is in a bubble. Indeed, house prices may fall, but they may remain at elevated levels when compared to everything else forever. In other words, the average person may always be priced out of owning real estate, regardless of what happens to house prices.

This nominal price chart may show a bubble to the untrained eye, but perhaps this is a permanent repricing.

So what is causing house prices to rise seemingly out of control? Why have house prices become volatile like stock prices? Below I provide a list of the major factors caused by government interference that have turned our homes into speculative tools for the savvy investor and millstones for those homeowners who cannot comprehend how the housing market has been profoundly and permanently altered.

Question: Why have house prices become volatile like stock prices?

Answer: Government policies, tax laws, and regulations of all kinds

Tax Laws, Government Programs, And The Reasons Behind The Rising Rents Need To Be Considered 

Why is this multidimensional analysis important? The housing bears continue to view their house price analysis with simple price charts and make conclusions based on price movements. This is a seriously misguided analysis as we need to consider a number of other factors that affect prices.

We need to consider why rents keep rising, which affects price-to-rent ratios, capitalization rates, and imputed rents of owner-occupied housing. As long as these values remain fairly consistent, then housing price levels can be supported.

Moreover, we must view real estate as a bundle of benefits, with tax advantages and government subsidies as one of the most important. Restrictive zoning and laws designed to alleviate the affordable-housing problem also exacerbate the dilemma. As I will discuss, items such as changes to capital gains exclusions, affordable-housing laws, and restrictive zoning all play their part and have really provided a tailwind to housing prices.

Taxpayer Relief Act of 1997 – Last Decade’s Housing Bubble Starts Here

I spoke on past shows about how tax legislation promulgated over the past 20 years have clearly had a profound effect on supporting house prices. The 1997 Taxpayer Relief Act was the most important legislation affecting owner-occupied real estate in over a generation.

Since the TRA of 1997 was enacted housing prices have become much more speculative. There is an incentive to drive prices upward. We are past last decade’s highs on a nominal basis.

Prior to 1997, home sellers could only exclude a gain if they used it to buy another and more expensive residence within 2 years of the original sale. Those aged 55 or older had a one-time exemption of up to $125,000 available.

On an inflation-adjusted basis, we are still well below last decade’s peak

The Taxpayer Relief Act of 1997 drastically changed this. Now, the federal tax code allows an exemption of up to $250,000 of capital gains for singles–up to $500,000 for married couples–on the sale of a principal residence. This means that there is no federal income tax levied on a gain of any amount up to and including these amounts when you sell your home.

Since capital gains to a large extent can be excluded with respect to many owner-occupied home transactions, home owners have an incentive to bid up house prices by “flipping” their houses. A tax payer has an unlimited amount of exclusions as long as they abide by the qualifying rules stated in the Act.

Governments Continue To Intervene As The Unwashed Public Demands Action. This Self-Reinforcing Loop Continues Forever.

When it comes to the growing affordable housing crisis, the public’s instinctual reaction is to demand more government intervention and action. But, as I have been saying, every time the government gets involved, the benefits get arbitraged into the system, which just raises prices and makes the operating framework more difficult with each enacted law, code, and regulation. These laws are written by self-serving lobbyists and firms with conflicts of interest and the entities that end up benefiting in the long run are real estate investors, real estate investment trusts, and institutional landlords. There is rarely an instance when this is not the case.

Let’s look at California for example. California is ground zero of the housing crisis. This article titled, Affordable housing crisis grips California illustrates the willful ignorance of the populace and their elected politicians.

California lawmakers are in midst of trying to solve a housing crisis that has spread throughout the state. An array of housing-related bills — 130 and counting — have been proposed in the Legislature since January.

The crisis is impacting people at higher and higher income levels, so I think members of the state Legislature are hearing about it far more from people in their district.

The state’s Department of Housing and Community Development — an agency that works to expand access to affordable housing — says California has built an average of 80,000 homes a year for the past decade, which is less than half of the 180,000 new homes needed to keep up with the predicted population growth through 2025. – Capitol Weekly

Yes, you read that right; there are an array of housing-related bills — 130 and counting — that have been proposed in the Legislature since January. How can anyone, especially Landlords and home builders keep up? They cannot, unless the are the large REITs or institutional landlords.  They help lobby for the legislation anyway. The more laws and regulations that California passes the worse (and more profitable) their housing crisis becomes. We can almost say that many of their problems are self-inflicted.

According to California’s Department of Housing and Community Development, home builders have built 1,000,000 too few homes over the past decade, as population growth and immigration have swamped the real estate markets. I am sure these politicians will never admit they are causing the problems they are trying to fix.

Open Borders and Household Formations Continue To Outpace New Construction of Single-Family Homes and Apartments
Population growth continues to move up in a linear fashion with no end in sight

The United States population has grown by almost 25 million people in the last decade. Since WW II the population has continued to increase on a consistent basis. While the annual growth rate may have fallen a few tenths of a percentage points, the total population is large enough that the numbers grow on a consistent linear basis.

Home builders can’t (or don’t want to) keep up with household formation

This chart shows how household formation has continued to rise at a much higher clip than construction of single-family houses after the last recession. Naturally, household formation fell during the last economic crisis, but soon rebounded as the economy stabilized. However, home builders chose to build higher-end single-family homes and condos, as construction costs, labor, and zoning regulations and costs continued to spiral upward.

New Home Builders Concentrating On Higher-Priced Housing as Local Zoning And Building Codes Become More Burdensome

Here is an article titled, Home building slowed as cities try to tame growth, which describes the troubles of a local home builder, who is trying to build a community of affordable housing.

On a parcel in Sammamish, Wash., a Seattle suburb, Mike Walsh would like to build 36 relatively affordable houses. But since zoning changes in recent years permit just 25, he’ll have to sell each at $1.2 million to make the project profitable.

An increasingly byzantine maze of zoning, environmental, safety and other requirements partly accounts for housing construction that remains 35% below normal levels across the country, especially for affordable starter houses, builders and economists say. And that building deficit is the chief culprit behind a skimpy supply of both new and existing homes that has driven up prices about 40% the past five years, says Lawrence Yun, chief economist of the National Association of Realtors. Rising prices are good for homeowners but shut out many buyers, especially Millennials shopping for their first house. – USA Today

Every Economic Sector With Out-Of-Control Costs Has A High Amount Of Government Regulation And Interference

I can go on and on about the reasons for high-priced housing and why I believe it may be permanent, but I observe the same problems in other economic sectors as well. I notice similar price distortions in the medical and health care sectors as well as in the legal and higher-education sectors, too.

When government attempts to “help” a market, all it does is distort pricing, necessitating more and more intervention until it effectively controls the whole thing. This was the intent all along. – Chris Pirnak

Government interference is prominent in every sector of the economy that has out-of-control costs. Notice that the government’s role is prominent in the medical and health care, legal, education, and housing sectors. The “benefits” of every program are arbitraged into the system, resulting in higher prices for everyone. This, in turn necessitates another round of “benefits,” which forms a self-feeding loop. This continues until the government controls just about every aspect of the industry. The ones who benefit are the ones who understand the system. The ones who lose are the ones for whom the legislation is ostensibly intended.

In microeconomics, government interference causes the supply curve to shift up and to the left, artificially restricting supply of whatever is affected. With respect to real estate, each time the government and tax jurisdictions implement a program or tax legislation designed to help real estate owners, the benefit get arbitraged into the system, raising the prices of real estate. These increases are permanent as long as the benefits are not rolled back.

Unless people really understand these harsh realities they will always end up with the short-end of the stick. Of course, this is done by design as most believe whatever they are told. If you are reading this research article, perhaps you won’t fall victim to the disingenuous reasoning and logic by the government, which says it is out to help you.

July 26th Show – The Globalist Plan Is Long, Get On With Life and Be Strong

I have uploaded a new show podcast for July 26, 2017. Click here to go to the show archives page to listen. The latest show is on the top of the page.

 Topics discussed –
-We need to build a life for ourselves. We can spread the truth by setting an example for others to follow.
-The globalists have developed and promote social media to diffuse our energies. They want us tapping on our keyboards, wasting our time.
-Since 9/11 we have been undergoing the next age of transition, which is a 50-year plan.
-Decades are still needed to complete the docket of the NWO. It took almost 50 years for homosexuality to be mainstreamed. It takes longer than most believe; even with modern brainwashing techniques.
-It is going to take longer than most realize for society accept “the mark.”
-The US Fed left interest rates unchanged. It amazes me how the financial press analyzes the meaningless. The leveraged buyout of the world continues behind the scenes while the private central banks confuse the public.
-Social Proof tendency keeps social media addicts poor.
Regards,
Chris

Markets Update – Globalists Use Social Media & Internet To Amplify Boom/Bust Cycles, Making People Poorer

I have uploaded a markets update and social commentary podcast for July 23, 2017. Click here to go to the show archives page to listen. The latest show is on the top of the page.

Topics discussed –
-Precious metals update; silver retakes 16 and moves up to test 50-day mva. Gold busts above 1233 and the 200-day mva to retake 100- & 50-day mva. Platinum finally closes above 50-day mva. Weak dollar helping precious metals.
-Bonds looking fine.
-Oil closes week on a bearish note, closes below 50 day mva. Bearishness may follow through for a couple days
-Stocks are near-term overbought. Test of support may come over the next several days
-Dollar testing 52-week support. Looking weak
-Since the advent of the internet and social media, boom/bust cycles have been increasing in amplitude and speeding-up.
-The globalists use social media and the internet to engender fear and greed in the population. This speeds-up asset cycles and shakes loose the population’s assets to make them poorer and poorer.
-Eventually, the dumbed-down social media addicts will be renting everything as they won’t be able to make independent decisions.
-The human and sex trafficking crises as well as the missing children and person problems will all be solved. The globalists have the perfect solution. Contrived globalist-sponsored crises, with their solutions.

Regards,
Chris

Locals Priced Out of Buying Homes (Part 2) – Wall Street Destroys Housing Again

Foreign Money and Wall Street; A Tag-Team Driving Up Housing Costs
A house owned by a private equity fund. It looks like a house I would want to own.

In my previous article titled, Locals Priced Out of Buying Homes – Foreign Buying “Skyrockets”, I discussed how speculative foreign money, specifically Chinese money, has driven up real estate prices in many areas of the nation. In this article, I discuss how Wall Street money is having a similar effect. Keep in mind that these buyers do not intend to actually live in these homes. In effect, they have artificially heightened demand, while shrinking supply. This has profoundly and permanently changed the single-family real estate landscape for all of us.

Many young adults are sitting on the sidelines of the housing market…new data shows that one huge factor is the competition — some might say unfair competition — young adults face from investors who can just swoop in, drop a pile of cash and buy the houses they want. These investors then turn around and rent these properties to those same young adults for increasing amounts every year, making it even tougher for young would-be homeowners to ever save up enough money for a down payment.  — Money

Private equity shifts the supply curve up, raising prices in a weak economy, causing homeownership rates to drop
Despite no pick-up in homeowner demand and a lackluster economy, prices in 2012 began to rise sharply.

Toward the end of 2012, a number of brokers in many areas of the country began noticing something strange. Home prices were starting to rise, and fast—about 20 percent annually. Normally, higher home prices would signal increased demand from homebuyers and indicate that the economy was rebounding. But the home ownership rate was still dropping. The real estate market was out of long-term equilibrium.

What many hadn’t realized was that something completely unprecedented was quickly transforming the owner-occupied real estate market. Large private equity firms and real estate investment trusts (REITs) such as Blackstone, Waypoint, Starwood, and American Homes 4 Rent with the funding help of Goldman Sachs, Deutsche Bank, and Morgan Stanley began scooping up tens of thousands of single-family homes.

Homeownership rates continued to fall to levels not seen since the 1960s as institutional money was buying

Indeed, many of the investment banks that were helping these private equity firms and REITs had been instrumental in causing the housing bust only a few years prior. These institutional buyers had an uncanny ability to time the 2012 nadir of the housing market cycle.

The typical house a single-family rental REIT purchases

At a time when owners were being foreclosed upon, this deep money paid cash to scoop up large swaths of housing stock at a time when the average person should have also been buying. The banks could not keep up with their foreclosure backlog and were selling many homes for pennies on the dollar.

So far to date, these firms have spent about $30 billion to buy more than 200,000 working-class, single-family residential homes. Their initial objective was to capitalize on depressed prices with rental income as their secondary goal. Their time horizon was to last about five years until they disposed of these properties to home buyers.

In 2005, there were 10.5 million single-family rental properties. Today there are 17 million. That’s almost a 70 percent increase.
Owner of 50,000 single family homes in desirable areas and a former subsidiary of Blackstone

We’ve quickly becoming a nation of renters — and not just apartment dwellers. Since the housing crisis, more renters are writing the monthly check for single-family homes and are also writing checks to corporate landlords like Invitation Homes, Colony-Starwood, and American Homes 4 Rent.

Between 2012 and 2016, Blackstone acquired almost 50,000 single family homes in thirteen markets including Southern California, Northern California, Seattle, Phoenix, Las Vegas, South Florida, Tampa, Orlando, Jacksonville, Atlanta, Charlotte, Chicago, and Minneapolis for total upfront costs of approximately $9.6 billion.

Owner of over 30,0000 single family homes in places we would like to own

Here is a recent article titled, More homes (a lot more) in the plans for Scottsdale-based rental real estate company, which aptly illustrates the fierce consolidation of the single-family housing sector. The story stated that Colony Starwood Homes announced its plans to acquire a portfolio of 3,106 single-family homes. That is a rise of about 10% in their portfolio count. This means Colony owns at least 30,000 rental houses. Their portfolio of rental houses are located across California and in big cities including Chicago, Atlanta, Tampa, Miami, and Orlando.

Back in 2005, there were about 10.5 million single-family rental properties, said Karan Kaul of the Urban Institute. “Today that number is north of 17 million. That’s almost a 70 percent increase.” She says most of the growth has been directed in the single-family market. During the housing crisis, when foreclosures were mounting, investors with cash snapped up tens of thousands of distressed properties in cities like Atlanta, Phoenix and Las Vegas, and converted them to rentals.

What Started as a Short-Term Buy and Flip is Turning into a Long-Term Landlord Plan
AMH owns 50,000 single-family homes that someone else used to own

While actual housing price growth rates have lagged expectations, rents have been rising at a decent clip. What began as a plan to buy and flip became more of a long-term proposition. This means that most of the corporations and REITS involved in the single-family market intend to become longer-term landlords.  The longer these firms own their properties the more money they will make as their rent roles continue to increase.

Average rents for single-family rental housing increased 4.5 percent in 2017 compared to the year before – ATTOM Data (formerly known as RealtyTrac)

Rents in the single-family sector continue to rise slowly, despite what the housing bears claim. We must be wary of the housing bears who cherry-pick their data to conform with their confirmation bias. As a Realtor and investor I only observe rent increases in the single-family segment and see no sign that this trend is changing. In fact, in all my years of investing I have never seen a drop in rent rates with respect to any housing segment in the Washington DC area.

Corporate Investors Plan to Build Entire Communities of Single-Family Rental Properties

With today’s housing supply so tight and prices rising, it’s not as easy for companies to snap up cheap homes anymore, so some are planning to expand by building new houses, even entire neighborhoods, and putting them up for rent.

Total rental units rising much faster than owner-occupied units, we are becoming a sharecropper nation.

According to this article from Bloomberg,  American Homes 4 Rent, a five-year-old real estate investment trust and the biggest of the publicly traded landlords by number of homes, is buying lots and houses around the U.S. Colony Starwood Homes plans to purchase at least 600 just-erected properties over the next year from more than a dozen builders. Privately held AHV Communities LLC is plotting whole neighborhoods for those who want — without the bother of ownership — single-family residences with some apartment-complex bells and whistles, such as fitness centers and bocce-ball courts. Residents don’t even have to mow their lawns.

The bet behind the build-to-rent boom is that there are enough people who dream of the detached-house life but can’t afford to buy into it. With tight mortgage standards and rising prices, and millennials putting off marriage and loaded up with student debt, that might not be a long shot.

We Are Becoming a Nation of Sharecroppers; We Are No Match for Institutional and Foreign Money

The boom/bust asset cycles are finally tearing us away from our own homes. As long as the economy remains lackluster for the average family and household income growth is subdued, it will be difficult for the average family to afford much of the housing stock that becomes available.

We may look at the housing price charts and exclaim we are in a bubble, but between institutional money and foreign funds pouring into the residential single-family housing market, we can be looking at a market that may be out of reach of the average American for many more years – perhaps permanently.

In the end, this fulfills a goal of the globalists. Their objective is to make us a nation of debt-slaves, living on a rented debt plantation. I wish I had better news for us. It would be nice to think that home prices will be coming down, but if they do, most people will still not be able to afford them.

 

Locals Priced Out of Buying Homes – Foreign Buying “Skyrockets”

Foreign Buying is Overwhelming Domestic Housing Demand; Local Residents Being Priced Out of their Own Homes

Never underestimate this real estate cycle’s intensity. I have been warning readers not to look at the house price charts and conclude anything. We can be wrong for years waiting for housing market equilibrium. Foreign buying, led by the Chinese, is beginning to overwhelm the market while endogenous market factors, like household income and economic growth, are beginning to take a backseat.

The numbers out from the National Association of Realtors continue to paint a somber picture for the average American. I came across this article last night, which demonstrates the latest trend in the foreign real estate buying spree.

Foreign Home-Buying in U.S. Bounds to Over $150 Billion

Cash Only Purchases, Which Remain Vacant; Driving Up Rents
The type of real estate the Chinese are buying

As a licensed Realtor, I have observed that most of the foreigners are performing little due-diligence on their real estate purchases and that many of the transactions involve only cash. Since real estate is priced at the margin, only a few purchases can drive the market. This is what I am noticing here in Northern Virginia. Moreover, many of the homes are essentially taken off the market as they continue to remain vacant. Of course, this plays a part in keeping rents higher.

As the article says, foreign buyers purchased 284,455 U.S. homes from 2016 to 2017, with a sizable share of transactions taking place in California, Florida and Texas. Activity on the part of resident foreigners and non-resident foreigners both expanded—the former up 32 percent to $78.1 billion, and the latter up 72 percent to $74.9 billion.

In Past Cycles Foreigners Concentrated on Skyscrapers and Hotels
Foreigners in previous cycles concentrated on large purchases

When the OPEC producers were flush with dollars during the 1970s-80s, only a small number of individuals controlled that wealth. Thus, when these foreigners entered the US real estate market they concentrated on large purchases, such as skyscrapers, malls, and high-end estates.

When the Japanese entered the market during the 1980s-90s, they were primarily represented by large corporations, flush with trade-deficit wealth, and concentrated on big-name purchases, such as the Rockefeller Plaza and the Waldorf Astoria.

The Chinese are competing with you and me

Today, the Chinese buyers number in the tens of millions and are concentrating on residential real estate, the kind you and I own. Thus, I have concluded that the market dynamics driving this cycle are much different that in previous cycles. The average American is competing with these foreigners, and as long as these foreigners have the cash, they control the transaction negotiation.

44% of Foreigner Buys Were Cash Only

The median sales price of homes bought by foreign buyers was $302,290, according to the Profile. Forty-four percent made all-cash purchases, and 10 percent made $1 million-plus purchases.

Buyers from China comprised $31.7 billion of the total volume between 2016 and 2017, followed by Canada at $19 billion, the UK at $9.5 billion, Mexico at $9.3 billion and India at $7.8 billion. Home-buying activity originating from Canada was concentrated in Florida, while activity originating from China was focused in California and activity originating from Mexico occurred in Texas.

We Are Still in the Foothills, Higher Peaks Ahead

“In 2016 Chinese investment in international and U.S. real estate hit a historic high,” says Sue Jong, chief of operations for Juwai.com. “While we think the dollar amount is likely to decline somewhat this year, investment levels are still in the foothills of this mountain range. There are higher peaks ahead. Chinese buyers trust the American market and believe it is a long-term safe bet. The U.S. is also the most popular destination for Chinese immigrants, students, and corporate investment. All of these factors drive property acquisitions.”

Foreigners Rush to Get Money Off the Grid
Smaller nations have been more profoundly impacted by foreign money

Recall that the Chinese have never had to endure a long-term housing downturn in their homeland. They also think there is only one way for real estate in the United States and Canada.

“The political and economic uncertainty both here and abroad did not deter foreigners from exponentially ramping up their purchases of U.S. property over the past year,” says Lawrence Yun, chief economist at NAR. “While the strengthening of the U.S. dollar in relation to other currencies and steadfast home price growth made buying a home more expensive in many areas, foreigners increasingly acted on their beliefs that the U.S. is a safe and secure place to live, work and invest.”

Local Residents Forced to Compete; Driving Debt Ratios Higher
Debt to income ratios continue to rise with house prices

“Inventory shortages continue to drive up U.S. home values, but prices in five countries, including Canada, experienced even quicker appreciation,” says Yun. “Some of the acceleration in foreign purchases over the past year appears to come from the combination of more affordable property choices in the U.S. and foreigners deciding to buy now knowing that any further weakening of their local currency against the dollar will make buying more expensive in the future.”

The local residents are now forced to compete with these newcomers. Thus, their debt ratios climb as they need larger mortgages to buy homes. I cannot tell you when this cycle will end but, the amount of foreign money still on the sidelines is staggering. This can continue for much longer than the housing bears realize.

So, throw away those charts. If we want to know when this market is going to turn down, we need to analyze when the foreign money will stop coming in and feeding the frenzy. As we can see from the above debt/income chart, the local residents will be the ones left holding the bag.

New Show Podcast – I Have Come Back From the Future; I am Here to Tell You It Does Not Go Well

I have uploaded a new show podcast for July 19, 2017. Click here to go to the show archives page to listen. The latest show is on the top of the page.

-Was Jesus a socialist?
-The Triffin Paradox and how it is impacting real estate markets and US citizens
-Asset prices rising across the board. Some more reasons why
-Why are housing prices rising? Will they continue to rise?
-Moms smoking more marijuana. The globalists are promoting marijuana use. In fact, they are promoting all drug use.
-We are living the future now. It’s like a dystopian novel and the movie WALL-E
-All media outlets put out stories of police violence. They are put there to remind us we have no power and we are already in a police state.
-What news sources I look to everyday. What podcasts I recommend.
-The future is now

The Causes of the Next Real Estate Collapse

This Real Estate Bubble is Different from All Prior Bubbles (The Chinese Are Buying Real Estate Like They Buy Bitcoin)
Bubbles everywhere. The US looks tame by comparison. Asian money continues to search the globe.

I came across this article titled, For Chinese Real Estate Investors, U.S. Is Tops. According to the article, the U.S. housing market is a draw for foreign real estate investors, who continue to express assurance in either becoming or remaining active in U.S. real estate. One of the most considerable countries of origin is China, where investors are slated to pour $80 billion into international real estate in 2017, with the U.S. at the top of the list. The projection, though a pull-back from 2016’s record $101.4 billion, is historically one of the largest sums ever.

Asian money destroying supply/demand in Canada

If we analyze the global price data, the US market looks tame in comparison. The concern of bubbles is more pressing in smaller nations, such as New Zealand and Canada, where foreign money has a much larger impact.

China has been the top country of origin for residential real estate investment in the U.S. in recent years, according to the National Association of REALTORS® (NAR), surpassing all other countries in terms of dollar volume. China has also made waves on the commercial side, making the most investment of all countries in the sector in 2016.

Most Chinese and Asian Real Estate Investors have no Fear or Prudence
Chinese real estate prices have only gone in one direction
Malaysian house prices – Owning a home has been a one-way ticket to riches

The rules governing Chinese real estate ownership have only been formalized since 1994, and if we look at their housing price data since then it has been a consistent winner. Since the Chinese have never been impacted by a long-lasting real estate downturn, they have no fear. Real estate downturns in the western nations can last for a decade or more; and certain sectors, like condominiums in second- and third-tier areas, can have price downturns that take decades to recover. Based on empirical money flow data it seems that Chinese and Asian investors along with institutional money, like Blackrock, are causing the global real estate bubbles.

My concern is that many Chinese are buying real estate like they are buying bitcoin.

The Right of Private Property in China is a Recent Idea

When the Chinese Communist Party assumed control over mainland China in 1949, it did not follow Russia’s Bolsheviks in immediately abolishing the private ownership of land. Over the years, however, government policies chipped away at the rights of landowners until, by the end of the Mao Zedong era, private ownership existed in name only. With the promulgation of a new constitution in 1982, all urban land was declared state-owned. Since then, state ownership of urban land has been considered a pillar of Chinese socialism.

By the late 1980s, the state was looking for ways to marketize land use and raise money, and so—in a process that began experimentally in 1988, was formalized into law in 1994. Regardless, the owner of real estate in China essentially rents back the land from the Government. In the US there is “ground rent” and in China this is essentially the same.

Since these laws have been codified, residential real estate prices in China and in much of Asia have been on a non-stop climb.

This Bubble Is Different; When it Pops, the Causes Will be Different.
It will be different this time around

It is easy to look at charts and exclaim we are in a bubble. I look at this twitter feed to demonstrate how this confirmation bias can mislead investors for years. He has been at it for at least two years. I guess that people like him must have read or watched “The Big Short” and think it is going to end the same way again. But residential mortgage underwriting has been more strict since the last downturn, and many real estate transactions still involve cash only. So, something else is going on.

I see two primary sources of cash that are bidding up residential real estate;
-institutional single-family rental property demand
-Asian money primarily, and other foreign funds looking to park cash off the grid and make capital gains.

As long as these investors have the cash, prices will continue to defy gravity. When these pools of money dry up then we need to watch out below.

What makes the heightened money flows from China worrisome is that the Chinese do not seem to be performing the usual due-diligence that is routine in normally functioning markets.

Regardless of the causes, This Won’t End Well

If we use the classical assumption that we can measure residential house prices based on certain criteria like Capitalization Rates or Internal Rates of Return, we can be on the wrong side of the housing cycle for years.

Boom/bust cycles always take place and it is incorrect to try to base upcoming bubbles by how the prior ones occurred. If and when there is a large collapse in house prices it will vary from country to country. With this hot and dumb Chinese speculative money, this cycle can be propped up for a lot longer than even the speculators of “The Big Short” can hold out for before going bankrupt.

But, you and I both know; this won’t end well for anyone.

 

Market Update – July 15th Market Update – Markets take dovish stance as economic numbers disappoint

I have uploaded a new Market Update podcast for July 15, 2017Click here to go to the show archives page to listen. The latest show is on the top of the page.

-Precious metals update; Silver needs to retake 16 soon, so it can test the 50-day mva. Gold looks OK, but a break above 1233 (200-day mva) is key.  If this happens the miners could move higher.
-A discussion of Friday’s economic data
-Analysis of the stock futures
-Bonds in tight range
-Restaurants and oil drillers suffering from the same thing; low cost of capital. This allows marginal firms and restaurants to stay in business, which drives same store sales down and keeps oil below $50.
-Stock market capitalization now 102% of GDP
-USDX fading slowly. Support levels discussed.
-A cryptocurrency commentary
-A home purchase cannot just be analyzed as a financial transaction

Weak Economic Data Help Central Banks Continue their Leveraged Buyout of the World

The central banks are excited with the weak economic data

Here is an establishment article from Bloomberg titled, Yellen Leaves Markets With the Wrong Impression. Among other things, The article says that that the central bankers are struggling to understand the recent downward trend in inflation.

The relentless increase of central bank assets since the contrived collapse of 2008

The millennial banking families that own the privately run central banks know exactly why there is little inflation; the world is sinking in a sea of deflationary red ink. It’s done by design. While inflation is subdued by many traditional measures, the average person’s debt and tax burdens are stifling and suffocating, and destroy buying power. This provides a favorable environment to carry out their perfect heist. As long as long-term sovereign bond yields remain low the banking families’ plan to own the world can continue to be carried out.

The average alt-media follower may see this fiat monetary system as a failed experiment. However, to the owners of the central banks it has succeeded; they now have this propitious opportunity to buy up the rest of the world they do not already own while their fiat monetary system bleeds a slow death. As you can see from the above chart they are not wasting any time.

It truly is the largest conspiracy the world has ever seen
The US Fed – Not part of the US Government

Most writers and reporters in the alternative financial media come from the perspective that the US Fed and other major central banks don’t understand the implications of their actions and are just desperate. But these banks are carrying out a well-scripted plan to buy up the world for their owners without us ever realizing it. By scaring us with contrived collapses we give them permission to execute a leveraged buyout of the world right under our noses.

Here is an article from one of the many who describes the US Fed as “dumb.” The writer also calls their policies “bent and distorted.” Here is another one from John Mauldin, titled “Mad Hawk Disease Strikes Federal Reserve.” I think you see what I mean.

Do not get caught up in this game. The bankers are geniuses and they control the world, so it is impossible to imagine that the central banks are dumb. They own us and the nations, and continue to consolidate the world’s wealth. It’s the perfect con. We always underestimate our adversaries.

Don’t ask Martin Armstrong about conspiracy

Most of the financial analysts covered in the alt-media reject the notion of this conspiracy. Ask Martin Armstrong about what we discuss and he will laugh in your face. He points to Rome as an example and the decadence of politicians past and present. He will tell you the US Fed is a great creation, but that the US Government hinders its effectiveness. I wonder what type of agreement he worked out to gain his freedom?

What about Jim Rickards or John Mauldin? How about those sound-money news letters from the likes of Mises? They are all compromised in one way or the other. If these “gurus” admitted to this conspiracy they would lose their institutional client base and would be castigated and maligned. It’s just more expedient to call central bank policy misguided.

Central bank flip-flopping confuses the markets, so the real agenda can move forward undetected

On any given day the central banks may come across as hawkish, the next day they may be dovish. It provides for a lot of commentary about the meaningless. The controlled mainstream and co-opted alt-media serve a very valuable function, as their continual screams of collapse and calamity provide the fertile ground necessary for the central banks to continue to gobble up the world for their owners. It causes a lot of confusion. Of course, that’s the intent.

Why would these central banks buy up at least a couple hundred billion a month in private sector assets such as corporate debt, equities, and mortgage debt? For control, of course. They are buying much more than sovereign bonds. By the end of 2017 the central banks will control more than $20 trillion of assets.

If you are looking for causes to the equity price inflation, look no further than the world’s privately run central banks. It’s done by design.

Italy’s 10-Year Bond yields fall under ECB PSPP

It’s all about control. Once the banking families have enough of the world’s assets under their care, they will either pull the world’s economic plug or execute their planned WW III. Either way, they win and we lose. Welcome to the New World Order.

Greece may be bankrupt, but you won’t see that by looking at their bond yields

In the mean time, the central banks, led by the ECB, are buying most of the debt issued by Greece, Portugal, Spain, and Italy. Recall from earlier in the decade about the scare tactics their controlled media employed to begin their Public Sector Purchase Programme. Ask yourself; how can Greece’s 10-year bond be yielding just a hair over 5%?

Bottom line

Friday’s weak economic numbers already provide an indication that Yellen’s and the ECB’s hawkish statements earlier this week are already stale. If we analyze the weak consumer inflation data and miserable retail sales numbers, we see a domestic economy that continues to flounder. This provides the perfect backdrop to continue the plan.

Recessions won’t derail the leveraged buyout of the world

The one set of data that publicly concerns the US Fed is the low cyclical unemployment numbers.  Yellen calls the recent deflationary forces “transitory” and says she worries that the cyclical low in unemployment poses latent inflationary risks. Really? Have you seen the jobs that make up the new economy? Have you seen the labor participation rate, which rivals the lows from the early 70’s when most women stayed at home?

Privately, the US Fed is concerned that the next leg up of unemployment will cause another recession. But, it won’t matter to the millennial banking families. The worse the economy becomes, the lower bond yields move, and the further their leveraged buyout of the world can continue to move forward.

You and I may be left twisting in the wind, but the weak economic numbers are a boon to the central banks and their owners.

I Added Two Podcasts Last Night; The Show is the Second One… Some more thoughts

Wednesday’s Show –
Just some thoughts on yesterday’s podcasts; I prefer Donald Trump’s platform to anyone else’s. However, with that said, the Don seems to be doing his best to make certain that little of it gets enacted. It really seems to be a tag-team match. I cannot imagine that he is doing this inadvertently.

His adversaries are going to continue their barrage of accusations. It will never end so, we need to get used to it. They are going to continue this until he slips up and does a “Richard Nixon.” Recall, Nixon wasn’t part of Watergate, but his subsequent knowledge of it and cover-up is what did him in.

The globalists’ goal is to make our election process into a farce, so that they can undermine all our institutions. This cycle has taken the agenda to new heights. Trump is not helping himself, and while the whole Russia thing is groundless, try telling that to his enemies.

Look at this article from CNN. I would never listen to the likes of Anderson Cooper. His personal life and CIA connections preclude me from ever trusting him as a news source.

So, we need to beware of the confirmation bias and backfire effect that this whole dynamic generates. Here is an article from Zerohedge that illustrates this. Be detached from this, as feeling a part of it will only divert you from what is really important – our personal and financial lives.

Market Update-
I put out a market update in light of all the central bank flip-flopping between the dovish and hawkish rhetoric. It is a show as the central banks need to continue this asset purchase program for their owners. They need to obfuscate the public while they do it.

The bottom line is that they need to keep long yields low. Ask yourself; how can the ECB taper with the poorer credits of Greece, Italy, Portugal and Spain on defacto life support? They have been kept in business with ECB bond buying. Greece’s intermediate yields are below 5%. Only the ECB can keep that going.

At the end of the day, the show must go on. Trump/democrats tag-team and the central bank asset buying programmes must continue. It’s all part of the plan.

Regards,
Chris