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Federal Reserve Policies Attacking Working Families

Wall Street

 

 

 

 

 

 

 

 

 

 

As we explained in our recent article “The Fed Steps On Middle America Again,” whether there is a political motive, or simply a Wall Street over Main Street bias one thing is certain: In the alternative universe where Wall Street’s Masters of the Universe and the mandarins who control America’s Federal Reserve Bank live, it seems good economic news for America’s middle-income families is something to be feared.

The Fed’s projected growth rate or target is 2 percent, half of President trump’s stated goal of 4 percent and less than half of the best quarter achieved during the Trump economic boom, and the central bank’s interest rate increases are already hitting working families in their most important investment; their home.

U.S. home price growth slowed in October, a likely consequence of higher mortgage rates having worsened affordability and causing sales to fall.

The S&P CoreLogic Case-Shiller 20-city home price index rose 5 percent from a year earlier, down from an annual gain of 5.2 percent in September, reported our friends at NewsMax.

Home prices have dropped as would-be buyers are struggling to afford homes. Prices have consistently climbed faster than wages, a challenge that was overcome until last year by historically low mortgage rates, reported NewsMax. But borrowing costs began to rise last year after President Donald Trump cut taxes and the Federal Reserve hiked interest rates.

“Prospective home buyers can no longer sustain the demand that propped up aggressively rising home prices,” said Cheryl Young, a senior economist with the real estate firm Trulia. “With little sign that home buyers’ purchasing power will strengthen into 2019, expect the housing market to stagnate well into next year.”

While Las Vegas, San Francisco and Phoenix were bright spots in the housing index, nationally sales have generally stagnated or fallen.

The National Association of Realtors reported earlier this month that sales of existing homes tumbled 7 percent in November from a year ago.

Consumers may get some temporary relief as mortgage rates have declined in recent weeks amid the stock market sell-off. The average rate on the benchmark 30-year, fixed-rate mortgage fell to 4.62 percent last week from nearly 5 percent in early November, according to mortgage buyer Freddie Mac.

Still, average rates are up from 3.94 percent a year ago reported NewsMax.

Housing remains the largest expense for the average American family.

And while many investment professionals will argue that a home is not an “investment” it is the single largest investment most families will make, and it is the largest repository of family wealth for many working families.

According to real estate market watcher Zillow, the cumulative value of all homes in the U.S. declined by $6.4 trillion from 2006 to 2012 as the housing market collapsed.

The total value of all U.S. homes in 2017 was estimated by Zillow at $31.8 trillion. The total value of all the housing stock in the United States has never been worth more than it is right now, meaning the housing market has fully recovered value lost in the crash of 2008.

Meaning that the largest investment held by many working families had finally recovered from the grim days of the Great Recession.

What does this mean for the U.S. economy?

As Svenja Gudell of Zillow wrote for Forbes, it means that individual homeowners hold 1.5 times the Gross Domestic Product of the United States and approaching three times that of China. Total U.S. home values have grown $1.95 trillion over the past year — more than all of  Canada’s GDP or two companies the size of Apple.

Gudell, chief economist for Zillow, observed that in the New York City metro area alone, total home values equal $2.6 trillion, more than the French economy — and enough money to buy 8,494 Boeing 787-10 Dreamliners.

Among the 35 largest U.S. markets, says Gundell, the greatest total home value growth happened in Columbus, Ohio, which gained 15.1 percent to $152.3 billion — enough to buy 634 million club seats at last year’s Cotton Bowl game between Ohio State and USC.

So why would the Fed want to do anything to slow the record-breaking run in housing values, slow wage growth and encourage a Bear market that will strip more wealth from the retirement accounts and college funds of America’s working families?

No one, even Fed Chairman Jerome Powell, seems to be able to clearly answer that question, and many see a Deep State move to hobble the President going into the 2020 election. Whether there is a political motive, or simply a Wall Street over Main Street bias one thing is certain: In the alternative universe where Wall Street’s Masters of the Universe and the mandarins who control America’s Federal Reserve Bank live, good economic news for America’s middle-income families is something to be feared.

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