Charts of the Week: Friday, June 29, 2012

The number one problem stifling the recovery has been the bursting of the housing bubble and all the collateral damage caused by humongous leverage and humongous political stupidity.  So how has Brother Ben tried to fix this big pump that was dead in the water?

The Fed used their toolbox to drive mortgage rates to historic lows, which have made houses the most affordable in our lifetime.  Is it working?

It is my belief that homebuilders cannot make enough money based on current prices to warrant their time and investment.  You can see that all of the sales (most of them) are in existing homes in the chart above (in which the blue line is much healthier than the red line).  Existing homes are being sold at prices not seen since the 1990s.  So, the first step is to get all of those existing homes sold, with low inventory, and the prices of new homes will move up to the levels that will start that homebuilding pump operating.  Is it working?  How's the existing home inventory now?

For the first time, the existing home inventory is back to those 2004 levels.  This is very, very exciting and portends a re-emergence of higher prices that will reinvigorate the new home building market.  Yeah Bernanke!  The dominoes are finally falling in the right direction.  This is still future talk, but 2013 should see a renewed (maybe dynamic) housing industry.

Don Hays

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