Gregor Weekly Macro Note: Saturday 21 November 2009

• Gregor Macdonald
• November 21st, 2009

Starting in early September on my Sunday night MacroTwits broadcast I began to show pictures of large, stately homes in the finer suburbs of Boston and my question to the stream was as follows: where is the future wage growth that will support the inventory of American homes, that are now priced above 600K? What started as a question, however, turned into more certainty as we moved into Autumn, and I saw from the incoming data that the next leg of the housing bust was getting underway. One can use proprietary data, public data, or in my case just a set of information providers and data that I’ve cultivated over the past ten years.

Hardly any observer of the economy was fooled into thinking that the Cash for Clunkers program represented a sustainable recovery in the automobile sector. So it has been a surprise to me this Autumn that so many composed for themselves a broader housing recovery narrative from the acute, artificial effects of FHA, Fannie Mae, and Tax Credit programs. (not to mention the FED’s operations in the MBS aftermarket). I’ve been watching 4-6 American cities for over 10 years now, starting from the time I moved back to the US from London. I have seen the entire cycle. But more important to note is that curating your own database or data sources on any subject is now quite possible for just about anyone with an internet connection, and some research skills. Thus, as we got into late October, I could see that house prices were once again coming down. More importantly, and unsurprisingly, it’s the upper end of the housing market–that sits above government infusions–that’s starting to turn downward.

My view is as follows: the American house has reliably acted as an inflation hedge for most of its history but during economic expansions a house becomes a more volatile call option on future wage growth. Given the structural changes to the US economy, and how those changes were papered over by the credit bubble, it’s now unlikely that a US house will act as a high-beta, upwardly tending call option on future wage growth–in the aggregate–because we still have a lot of heavy lifting to do before we get to the other side of this crisis. Accordingly, I now have to question whether many American houses can be priced above…(this article continues for subscribers through the membership gateway, on the right side of this page)

Subscribe to read the rest of this article.

More from Gregor Weekly

• Gregor Weekly Macro Note: Saturday 07 November 2009
• Gregor Weekly Macro Note: Saturday 03 October 2009
• Gregor Weekly Macro Note: Saturday 31 October 2009
• Gregor Weekly Macro Note: Saturday 28 November 2009
• Gregor Weekly Macro Note: Saturday 19 December 2009

From the Stocktwits Network

• StockTwits Brunch Transcript Feb 21, 2009 (Stock Twits)
• StockTwits Brunch: Saturday April 4, 2009 (Stock Twits)
• November 2009 (StockTwitsFX)

Tickers: deflation, gold, Housing, Inflation, Reflation, silver, Vacancy, Wages