Last week, John Coumarianos penned an interesting piece discussing the surge in home prices over the last few months. To wit:

“The psychological factors are harder to assess. People aren’t flipping condos for sport the way they were during the bubble when mortgages were available to anyone regardless of whether they had income or assets. Yet it seems there’s a widespread desire to own assets – stocks, bonds, and real estate – regardless of price. It’s not an obviously happy mania, where people are motivated by promises of great wealth. It’s more like a need to be an asset owner in an economy that continues to hurt workers without college degrees and becomes more automated. Nevertheless, the price insensitivity of many buyers is enough to cause concern.”

He is right.

Low rates, weak economic growth, cheap and available credit, and a need for income has inflated the third bubble of this century.

John makes a very interesting point of the potential for the recent bump in housing numbers to be part of the global asset chase.

While, there has been much hoped placed on the “housing recovery story” over the last few years, the hopes of a stronger housing-driven economic recovery has failed to emerge. But, in just the last few months, there has been, at last, an uptick in some of the data.

Is the improvement the beginning of “the” long-awaited housing recovery? Or, is it just the final inflation of a combined asset bubble driven by excess liquidity, cheap credit and a “yield chase” of epic proportions? 

Let’s look at the data.

At The Margin

The problem with much of the mainstream analysis is that it is based on the transactional side of housing which only represents what is happening at the “margin.”  The economic importance of housing is much more than just the relatively few number of individuals, as compared to the total population, that are actively seeking to buy, rent or sell a home each month.

To understand what is happening in terms of “housing,” we must analyze the “housing market” as a whole rather than what is just happening at the fringes. For this analysis, we can use the data published by the U.S. Census Bureau which can be found here.

Total Housing Units

In an economy that is roughly 70% driven by consumption, it is grossly important that the working age population is, well, working.More importantly, as discussed in “Yellen, Employment & Policy Errors“

“This also explains why the labor force participation rate, of those that SHOULD be working (16-54 years of age), remains at the lowest levels since the early 1980’s. This chart alone should give Ms. Yellen pause in her estimations on the strength of the underlying economy.”