Karl Denninger: The Shills Are Still Shilling (Housing)

08-23-2010 • Market-ticker.denninger.net/

What sort of bone-smoking idiocy is this? Bob Walters, chief economist of the online mortgage firm Quicken, acknowledges that the recent collapse will create a “mind scar” just as the Great Depression did. But he argues that housing remains unique. “You have to live somewhere,” he said. “In three or four years, people will resume a normal course, and home values will continue to increase.” Notice who this firm is - one of those who profits when you flip your mortgage, whether you go bankrupt doing it or not. Home values will continue to increase? You have to live somewhere? Well, the second is true. The first? Look, the laws of economics on this are simple: Home prices cannot ascend, over long periods of time, faster than real wages. That is, you cannot afford more house unless you make and bring home more money, in terms of dollars. Further, with interest rates now at extreme low levels, the "payment buyer" (that's nearly everyone) is buying at a secular high in affordability as measured by payment. The $200,000 loan at 4.5% interest for 30 years carries a P&I (principal and interest) payment of $1,009.58. The same loan at 6% carries a P&I of $1,193.14. Put a different way that same $200,000 loan is only a $169,232 loan when - not if - rates go from 4.5% to 6%. You don't buy things on long-term amortization schedules unless you intend to run the clock on the schedule when rates are very low. You buy them when rates are high, because then affordability of those payments is at its worst and is likely to get better. In an annual survey conducted by the economists Robert J. Shiller and Karl E. Case, hundreds of new owners in four communities — Alameda County near San Francisco, Boston, Orange County south of Los Angeles, and Milwaukee — once again said they believed prices would rise about 10 percent a year for the next decade. These people are on drugs, and that drug is being put on the table in front of them by Real Estate "professionals", who just like all other salesmen and women have never seen a crappy time to buy whatever they're selling. Well, I'll say it if they won't - it's a crappy time to buy a house.

1 Comments in Response to Karl Denninger: The Shills Are Still Shilling (Housing)

Comment by Ned The Head

Entered on: 8/23/2010 11:38:58 AM

Denny. What a slayer. I know some of you troll other sites like zerohedge and drhousinggloom and etc, but just reading Denninger and Mish, well, you get all of that in one massive power-packed punch.

No disrespect to Peter, but these two have absolutely DESTROYED the Austrian school in terms of accuracy and close-market predictions. Denny and Mish are really brilliant observers. And they all make for great entertainment! Schiffster is reliably entertaining, Mish is somewhat dry but with Denninger we get to see what a really brilliant man looks and sounds like when he's foaming at the mouth and raving like a lunatic.

There are just a handful of websites I try to visit every single day. One is Mish, globaleconomicalanysis.blogspot.com and Denninger, market-ticker.denninger.net. Denny tends to get way deep for my limited understanding, but like many geniuses, he tends to assume a higher level of cognition in his audience so you never get talked down to. You actually feel elevated like "wow this really smart guy thinks I'm smart enough to understand him" which makes you feel kind of cool because you know smart people.

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