Wednesday, December 26, 2012

Bernanke Money Printing Isn't All Fun and Games

Oh yeah, the stock market is climbing and Silicon Valley real estate is soaring, but of for the average Joe who gets new money late in the game, it's about dealing with higher prices before incom climbs. WSJ reports:
Across the U.S., "effective" monthly rent—which means the final amount paid including discounts—averaged $1,044 in October, up 3.7% from a year ago, according to Reis Inc., REIS a real-estate data firm. Landlords no longer have to "pony up in order to entice tenants," said Victor Calanog, Reis's chief economist[...]

In the third quarter, the ratio of rent to after-tax mortgage payments was 107.8%, according to Deutsche Bank. A rent-to-mortgage ratio above 100 means mortgage payments are cheaper than rent for the median homeowner. The ratio was down from an all-time high of 120.7% in the first quarter, but well above an average of 85% since 1991.

The rising cost of renting is putting pressure on tenants at a time when many are still grappling with slow or falling income growth. In the third quarter, renters spent 24.12% of their disposable income on financial obligations—things such as rent, debts and auto leases. That was the highest level since early 2010, according to the Federal Reserve.
It's about owning assets again, soon  people will be hearing about the neighbor who made money on his house and flipping it in just six months and more and more will enter the housing game. WSJ again:
This contrasts with living costs for homeowners, which have fallen steadily in recent years amid record low interest rates. During the third quarter, homeowners, including those who don't have mortgages, spent 13.9% of their disposable income on financial obligations, the lowest share since 1984, according to the Federal Reserve[...] In the long run, rising rents will encourage more families to buy.

It's a crazy game. The time to have been in housing was 6 months ago when I was aggressively advising to do so. Prices still appear cheap, but not as cheap as they were back then. It appears, the Federal Reserve is on a long term money printing program, as long as they continue to print, housing prices will continue to rise and renters will get squeezed.


  1. Wenzel, it is all about the three axioms of property: location, location, location! I do not live in a high demand area (even though it is great coastal property) and cannot agree with your drum banging.

  2. So we are outpricing homes, and apartments, again? Another sure path to debt creation. I have a great idea. Let's let wages, and availability determine home prices and rents, NOT Fed rackets, using our money.
    Mr Wenzel clearly exposed how the small investor and homeowner gets conned into a fraudulently(Fed w/our$) inflated market. Sadly unlike equities, home ownership involves long term credit and debt, huge interest generators, and easy marks for conjured up fees and paid-in equity pirating. What's not too cute is; the gangsters who are loaded with cash, could play that fed inflated game for more profits, quickly and more risk free,and flip the inflated homes to suckers, who WILL be granted(our backed) loans. Sound familiar? THEN, when the buyer defaults, WE again will be forced to hand the banker's their racketeered, inflated margin.
    Pretty work.
    It is like musical chairs, don't let them stick you, with an inflated property, when they prick the fragile bubble. They cull huge hauls on that racket, in any sector open for feeding.

  3. Some people claim that you can't re-inflate the same bubble. What do you think about that? It seems like it was probably true under conventional monetary policy, but since the Fed has been aggressively purchasing so many mortgage-back securities and keeping interest rates at all-time lows, that we're probably in uncharted waters.