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A Most Curious Disconnect

Ever since the great moderation started in the 1980s there had been a very close, almost perfect, correlation between the increase in the number of new homes sold in the US, and - logically - the median price of these homes. After all, builders would only invest money, labor and capital if they thought they would generate an appropriate return on their effort by selling to willing buyers. And then the first great financial crisis happened, and New Home Sales fell off a cliff and have yet to regain any of the pre-bubble euphoria.

Yet, oddly enough, while the actual number of new homes sold has barely budged during the so-called Recovery, the incentive for the builders, is right there, and as can been by median new home prices which continue to rise, and in fact hit an all time high as recently as December!

 

So what is going on here, and just how does this impact the prospects of the housing "recovery"? 

And while we await the answer, we wonder: how much would household formation - that most important missing component of any true, not goal-seeked recovery - soar if all those millennials stuck in their parents basement, even burdened by tens of thousands of student loans, were able to buy new homes at a price that correlates to the actual number of sales, somewhere north of $100,000 a piece?

Perhaps, just perhaps, ordinary, 99%-type Americans just can't afford to buy "normal" homes anymore?

Of course for that to happen, one would have to strip away the impact of the latest, $13 trillion central-bank inflated global liquidity bubble. So let's just forget that whole line of thinking.

Source: Census