Why this Won’t Work out: Rampant Rent Inflation Collides with Stagnant Incomes

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Why this Won’t Work out: Rampant Rent Inflation Collides with Stagnant Incomes
by Wolf Richter • July 12, 2016


[font color="blue"]Unlike stocks, a housing bubble can only go so far.[/font]

After a wait of 417 calendar days, or 286 trading days, the S&P 500 finally set a new record high on light volume. Bonds have soared, and yields have dropped to ludicrous lows. The 10-year Treasury yield hit an all-time low on Friday of 1.366%. Globally, nearly $13 trillion, or 29% of total bonds outstanding, are trading with a negative yield. So those asset bubbles remain intact.

Commercial real estate has been soaring since March 2009, and that bubble remains intact, though some markets are already causing fear and trembling due to office-space gluts that are now coinciding with withering demand, such as in Houston and in San Francisco. Home prices too have been soaring for years, though in some major cities, the tide has turned.

Rents have been rising in parallel. It’s in real estate where an asset bubble becomes a real-life issue for people who don’t even own any assets – they’re paying the price for the bubble.

Other asset bubbles abound. Central banks have accomplished a lot. Blowing so many bubbles to such an extent for so long has been an astounding feat. In total, central banks created $24.6 trillion, according to BofA Merrill Lynch estimates. When they bought financial assets with that new moolah, they put $24.6 trillion of cash into the hands of investors and speculators concentrated in the major financial centers of the world.

Yet the global economy remains languid. Demand is sluggish. Job growth in the US can barely keep up with population growth. And a good part of American consumers – those on fixed incomes and savers – have seen their incomes transferred to others. So they’ve gutted their consumption. .................(more)

http://wolfstreet.com/2016/07/12/rent-inflation-collides-with-stagnant-incomes/