Bull Market Trip

Beware of "irrational exuberance."

   New home sales are up, existing home sales are up, housing prices are up 5 percent over the year, the stock market is in its sixth year of a bull run, and personal income is rising in most states. But the overall economy is losing what little momentum it had, as total output has gone negative. What's going on here?
   We noted earlier this month that there was too much statistical fog to see a clear future for the American economy. This week, that outlook became even more foggy.
   Today, the government reported that real gross domestic product (GDP) -- the total value of all goods and services produced -- decreased  at an annualized rate of 0.2 percent in the first three months of the this year. Earlier estimates had put GDP growth at -0.7 percent, compared to a positive figure of 2.2 percent in the fourth quarter of 2014. So the drop wasn't as bad as previously estimated, but a change of less than one percentage point in either direction means the economy is barely moving.
   Even so, sales of new single-family homes in May rose by 2,2 percent from the month before, state-level personal income grew 0.9 percent in the first quarter -- down from a 1.1 percent rise in the fourth quarter -- and Wall Street investors continue on their bull run.
   Meanwhile, there are reports that more people are renting rather than buying homes, and the rise in employment is not what it could be. On a larger scale, that has prompted the Federal Reserve to back off once again on its plan to boost interest rates -- which means the economy is improving -- and the International Monetary Fund said energy has been sapped from the American growth potential.
   So even as the economy staggers, housing sales and prices are rising, which raises this question: Who can afford to buy the homes that are selling?