Peter Schiff: Weak Economy Is Driving Strong Housing Market

AUGUST 26, 2020  BY SCHIFFGOLD  

New home sales blew away expectations in July, coming in at the highest level since 2006. A lot of people take this as a sign of a strengthening economy. Peter Schiff begs to differ. In his podcast, he argued that surging homes sales are actually a sign of a weak economy.

Single-family new home sales rose 14% between June and July to an annual rate of 901,000, according to Commerce Department data. Sales were up 36% on a yearly basis.

This comes on the heels of a 24.7% spike in existing home sales, according to National Realtors Association data that came out last week.

As Peter pointed out in his podcast, you have to go back to housing bubble days to find a bigger month for new home sales. Is this because the economy is booming right now?

No. It’s got nothing to do with a booming economy. In fact, one of the reasons so many new homes are being bought is because the economy is so weak that mortgage rates are down at two-and-a-half percent.”

There is also a dark side in the housing market that is not being discussed. Even as people buy houses, many more are in danger of losing theirs. The overall delinquency rate for mortgages on one-to-four-unit residential properties spiked by nearly 4% in Q2, reaching 8.22% as of June 30, according to the Mortgage Bankers Association’s National Delinquency Survey. The jump in the delinquency rate was the biggest quarterly rise in the history of the survey.

Wolf Street summed up the situation.

This mess playing out in the mortgage market has been largely swept under the rug of widespread, government-supported forbearance programs – to where no one really knows what will happen to those mortgages when these forbearance programs end. And the exuberance in other parts of the real estate industry, such as with homebuilders, and even with mortgage brokers and mortgage lenders that arrange refi and purchase mortgages, is a contradiction to what is going on with these swept-under-rug delinquencies that will eventually come to a head.”

That contradiction is being fueled by Federal Reserve monetary policy. In effect, lenders are giving away money to buy homes. Keep in mind, you can still deduct mortgage interest from your income taxes. That means for those who itemize deductions, the net after-tax cost of the money will fall below 2%……..more here

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