US House prices now

It’s often said, in the USA, that Janet Yellen didn’t have any appetite for pricking bubbles  – or upsetting pr_cks – before her departure as the head of the US Federal Reserve.

And whilst Jerome Powell (the new head of the Fed) seems happy enough to upset Trump (not difficult) … and has been raising interest rates for a while now …

… his efforts have had no effect on their NEW house price bubble – at least not yet

Does it matter?

Well it might.

You see, the last time the Americans allowed their house prices to get out of control – we had a little bit of worldwide economic collapse!

Remember 2008-09?

And here’s an interesting thing about the USA . . .

. . . house prices tend to remain flat (in real terms) over the very long term.

Don’t take my word for it – look at that chart above.

It’s from the official U.S.A. Home Price index data of (Nobel Prize winning) Professor Robert J. Shiller.

And, you can find the full set of data right here 

Or, if you’d prefer a complete assessment of that and other asset markets . . .

. . . read Shiller’s brilliant book, “Irrational Exuberance“

Flat house prices?

Yes, I know it’s not something we’re used to, in the UK but when you think about it – it makes perfect sense.

Why should house prices grow faster than people’s earnings over the long term?

(provided that there’s enough supply of course – and that’s where we’ve gone wrong in the UK in the past)

The mortgage you can afford depends on your earnings.

So, all else equal, those two things should be linked.

The US house price bubble in the run up to 2007 was caused largely by excessive lending.

And that was fuelled by the mortgage backed security boom – which collapsed in the financial crisis of 2008-09.

What worries me now is that the super-low-interest rates we’ve had since the last crisis have simply reflated their bubble.

So please watch what you’re buying out there.

And for an update on UK house prices – click this image

And have a great day.

Paul

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