When the current housing bubble pops, it won’t be as bad as the pop in 2008-2009, it will be worse. From MN Gordon at economicprism.com:
“The free market for all intents and purposes is dead in America.” – Senator Jim Bunning, September 19, 2008
House Prices Go Vertical
The epic housing bubble and bust in the mid-to-late-2000s was dreadfully disruptive for many Americans. Some never recovered. Now the central planners have done it again…
On Tuesday, the Federal Housing Finance Agency (FHFA) released its U.S. House Price Index (HPI) for September. According to the FHFA HPI, U.S. house prices rose 18.5 percent from the third quarter of 2020 to the third quarter of 2021.
By comparison, consumer prices have increased 6.2 from a year ago. That’s running hot! But 6.2 percent consumer price inflation is nothing. House prices have inflated nearly 3 times as much over this same period.
Here in the Los Angeles Basin, for example, things are so out of whack you have to be rich to afford a 1,200 square foot fixer upper in a modest area. Yet the clever fellows in Washington have just the solution.
Massive house price inflation has prompted the FHFA, and the government sponsored enterprises (GSEs) it regulates, Fannie Mae and Freddie Mac, to jack up the limits of government backed loans to nearly a million bucks in some areas.
Specifically, the baseline conforming loan limit for 2022 will be $647,000, up nearly $100,000 from last year. In higher cost areas, conforming loans are 150 percent of baseline – or $970,800. What gives?
If you recall, ultra-low interest rates courtesy of the Federal Reserve following the dot com bubble and bust provided the initial gas for the 2000s housing bubble. However, the housing bubble was really inflated by Fannie Mae and Freddie Mac. The GSEs relaxed lending standards and, thus, funneled a seemingly endless supply of credit to the mortgage market.