Tag Archives: affordable housing

Affordability Crisis: Low-Income Workers Can’t Afford A 2-Bedroom Rental Anywhere In America

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The National Low Income Housing Coalition’s (NLIHC) annual report, Out of Reach, reveals the striking gap between wages and the price of housing across the United States. The report’s ‘Housing Wage’ is an estimate of what a full-time worker on a state by state basis must make to afford a one or two-bedroom rental home at the Housing and Urban Development’s (HUD) fair market rent without exceeding 30 percent of income on housing expenses.

With decades of declining wages and widening wealth inequality via the financialization of corporate America, and thanks to the Federal Reserve’s disastrous policies (whose direct outcome is the ascent of Trump), the recent insignificant countertrend in wage growth for low-income workers has not been enough to boost their standard of living.

The report finds that a full-time minimum wage worker, or the average American stuck in the gig economy, cannot afford to rent a two-bedroom apartment anywhere in the U.S.

According to the report, the 2018 national Housing Wage is $22.10 for a two-bedroom rental home and $17.90 for a one-bedroom rental. Across the country, the two-bedroom Housing Wage ranges from $13.84 in Arkansas to $36.13 in Hawaii.

The five cities with the highest two-bedroom Housing Wages are Stamford-Norwalk, CT ($38.19), Honolulu, HI ($39.06), Oakland-Fremont, CA ($44.79), San Jose-Sunnyvale-Santa Clara, CA ($48.50), and San Francisco, CA ($60.02).

For people earning minimum wage, which could be most millennials stuck in the gig economy, the situation is beyond dire. At $7.25 per hour, these hopeless souls would need to work 122 hours per week, or approximately three full-time jobs, to afford a two-bedroom rental at HUD’s fair market rent; for a one-bedroom, these individuals would need to work 99 hours per week, or hold at least two full-time jobs.

The disturbing reality is that many will work until they die to only rent a roof over their head.

The report warns: “in no state, metropolitan area, or county can a worker earning the federal minimum wage or prevailing state minimum wage afford a two-bedroom rental home at fair market rent by working a standard 40-hour week.”

The quest to afford rental homes is not limited to minimum-wage workers. NLIHC calculates that the average renter’s hourly wage is $16.88. The average renter in each county across the U.S. makes enough to afford a two-bedroom in only 11 percent of counties, and a one-bedroom, in just 43% .

FIGURE 1: States With The Largest Shortfall Between Average Renter Wage And Two-Bedroom Housing Wage

https://www.zerohedge.com/sites/default/files/inline-images/Screen-Shot-2018-06-15-at-7.20.19-AM.png?itok=KaVotzhn

Low wages and widespread wage inequality contribute to the widening gap between what people earn and mandatory outlays, in the price of their housing. The national Housing Wage in 2018 is $22.10 for a two-bedroom rental home and $17.90 for a one-bedroom, the report found.

FIGURE 3: Hourly Wages By Percentile VS. One And Two-Bedroom Housing Wages 

https://www.zerohedge.com/sites/default/files/inline-images/Screen-Shot-2018-06-15-at-7.35.24-AM.png?itok=iHn8hTTb

Here is how much it costs to rent a two-bedroom in your state:

https://www.zerohedge.com/sites/default/files/inline-images/Screen-Shot-2018-06-15-at-7.31.37-AM-768x656.png?itok=SXGF28_H
https://www.zerohedge.com/sites/default/files/inline-images/Screen-Shot-2018-06-15-at-7.38.14-AM-768x523.png?itok=XbVW_WOH

Case Shiller House Prices have continued to surge to bubble levels with growing demand for rental housing in the decade post the Great Recession.

https://www.zerohedge.com/sites/default/files/inline-images/DeaHhBBVAAAeXNU-1-768x822.jpg?itok=YoWejOTe(Click here for larger image)

The report indicates that new rental construction has shifted toward the luxury market because it is more profitable for homebuilders. The number of rentals for $2000 or more per month has more than doubled between 2005 and 2015.

Here are the Most Expensive Jurisdictions for Housing Wage for Two-Bedroom Rentals

https://www.zerohedge.com/sites/default/files/inline-images/Screen-Shot-2018-06-15-at-8.30.11-AM.png?itok=U4SbvhkU(click here for larger image)

Here is how your state ranks regarding Housing Wage: 

https://www.zerohedge.com/sites/default/files/inline-images/Screen-Shot-2018-06-15-at-8.31.40-AM.png?itok=OEREudkr(click here for larger image)

“While the housing market may have recovered for many, we are nonetheless experiencing an affordable housing crisis, especially for very low-income families,” said Bernie Sanders quoted in the report.

The fact is, the low-wage workforce is projected to soar over the next decade, particularly in unproductive service-sector jobs and odd jobs in the gig economy, as increasingly more menial jobs are replaced by automation/robots. This is not sustainable for a fragile economy where many are heavily indebted with limited savings; this should be a warning, as many Americans do not understand their living standards are in decline. American exceptionalism is dying.

https://www.zerohedge.com/sites/default/files/inline-images/Screen-Shot-2018-06-15-at-7.39.37-AM.png?itok=bqrovzMC

The bad news is that for the government to combat the unaffordability crisis, deficits would have to explode because even more Americans would demand housing subsidies, setting the US debt on an even more unsustainable trajectory. Even though Congress marginally increased the 2018 HUD budget, the change in funding levels for some housing programs have declined.

Changes In Funding Levels For Key HUD Programs (FY10 Enacted To F18 Enacted) 

https://www.zerohedge.com/sites/default/files/inline-images/Screen-Shot-2018-06-15-at-8.12.49-AM.png?itok=ZdxA6T54

But wait a minute, something does not quite add up: consider President Trump’s cheer leading on Twitter calling today’s economy the “greatest economy in History of America and the best time EVER to look for a job.”

Source: ZeroHedge

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Rents Surge Most in 16 Months Pressuring Home Buyer Wannabees

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Rents in all unit sizes picked up steam in April. Among the largest cities, Las Vegas, Denver, and Detroit led the pack.

The Rent Cafe’s Monthly Rent Report for the 250 largest US cities shows a 3.2% Y-o-Y surge.

The national average rent in April clocked in at $1,377. This marks the highest annual growth rate since the end of 2016.

By Size

  • Large cities: Las Vegas sees the fastest increasing rents Y-o-Y (6.0%), followed by Denver (5.8%) and Detroit (5.4%). Apartment prices in Brooklyn and Manhattan continue to slide, while rents in Washington, D.C., Portland, and Austin have been steady, growing by less than 1.5%.
  • Mid-size cities: Rents in Sacramento cooled down to 6%, but still lead. At the other end of the spectrum are New Orleans (-2.2%), Tulsa (0.5%), and Wichita (1.0%), where rents are growing the slowest.
  • Small cities see the top 20 most significant rent increases in April. Rents in the Midland-Odessa area skyrocketed for another month, 35.6% and 32.6% respectively. At the bottom of the list sit Norman (-2.5%), Lubbock (-2.5%), and Alexandria (-1.1%).
  • No significant fluctuation in prices was noticed in Chicago, Philadelphia, and San Francisco, where apartment rents grew slower than 2% over the year.

Significant Changes

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Wages Aren’t Keeping Up

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The above chart was released today by the BLS. For details, please see Jobs Report: Payroll Miss +164K, Nonfarm Wage Growth Anemic +0.1%.

BLS in Agreement

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The BLS also has rent of primary residence up 3.6% (from March).

Median New Home Sales Price

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Median Real Wages

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Home Buyer Wannabee Dilemma

Home buyer wannabees struggle with rents but cannot afford houses.

The most recent data for median wages is from May of 2016. May of 2017 will be out soon and I will update the chart.

New buyers struggle with rent but home buying is not an option.

Real median wages are down seven of the last 11 years while home prices (not even reflected in the CPI), have soared.

How the Fed’s Inflation Policies Crucify Workers in Pictures

Deflationary Bust Coming

The current setup leads to another deflationary collapse as we saw in 2008-2009, not an inflation boom.

If I were trying to create a deflationary bust, I would do exact exactly what the world’s central bankers have been doing the last six years,” said Stanley Druckenmiller, 2018 recipient of the Alexander Hamilton award.

That is precisely what I have been saying for a long time.

For an explanation of the coming deflationary collapse, please see Can We Please Try Capitalism? Just Once?

No Relief In Sight: Housing affordability is weakening at the fastest pace in a quarter century

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  • Rising home prices, rising mortgage rates and rising demand are colliding with a critical shortage of homes for sale. And all of that is slamming housing affordability.
  • This year, affordability — based on the amount of the monthly mortgage payment will weaken at the fastest pace in a quarter century, according to researchers at Arch Mortgage Insurance.
  • Other studies that factor in median income also show decreasing affordability because home prices are rising far faster than income growth.

It is the perfect storm: Rising home prices, rising mortgage rates and rising demand are colliding with a critical shortage of homes for sale.

And all of that is slamming housing affordability, which is causing more of today’s buyers to overstretch their budgets. This year, affordability — a metric based solely on the amount of the monthly mortgage payment — will weaken at the fastest pace in a quarter century, according to researchers at Arch Mortgage Insurance.

The average mortgage payment, based on the median-priced home, increased by 5 percent in the first quarter of 2018 nationally and could go up another 10 to 15 percent by the end of the year, according to their report.

Researchers looked at the median-priced home, now $250,000, and estimated price gains this year of 5 percent in addition to mortgage rates going from 4 percent to 5 percent on the 30-year fixed. Other studies that factor in median income also show decreasing affordability because home prices are rising far faster than income growth.

That is a national picture – but all real estate is local, and some markets will see affordability weaken more dramatically. The average monthly payment in Tacoma, Washington, is estimated to increase 25 percent this year, given sharply rising prices. In Baltimore and Boston, it could rise 21 percent in each. Philadelphia, Detroit and Las Vegas could all see 20 percent increases in the average monthly payment.

“If mortgage rates and home prices continue to rise as expected, affordability will get hammered by year-end as demand continues to outstrip supply,” said Ralph DeFranco, global chief economist-mortgage services at Arch Capital Services. “A strong U.S. economy combined with a housing shortage in many markets means that there is little hope of any price drop for buyers. Whether someone is looking to upgrade or purchase their first home, the window to buy before rates jump again is probably closing fast.”

Barely a decade after home values crashed especially, they are now hovering near their historical peak, accounting for inflation. Prices are being driven by record low inventory of homes for sale. Home builders are still producing well below historical norms, and demand for housing is very hot. The economy is stronger, which is giving younger buyers the incentive and the means to buy homes.

Stretching budgets and pushing limits

Maryland real estate agent Theresa Taylor said the supply shortage is hitting buyers hard. She is seeing more clients stretch their budgets to win a deal amid multiple offers.

“People are having to escalate offers on top of rates going up. I’m seeing it in all price ranges,” said Taylor, an agent at Keller Williams. “I am seeing it when I’m getting five offers, and people are trying to package up an offer where they’re pushing their limits.”

Buyers are taking on much higher debt levels today to be able to afford a home. In fact, the share of mortgage borrowers with more than 45 percent of their monthly gross income going to debt payments more than tripled in the second half of last year. Part of that was because Fannie Mae raised that debt-to-income threshold to 50 percent, but clearly there was demand waiting.

“Family income is rising more slowly than home prices and mortgage rates, meaning that the mortgage payment takes a bigger bite out of income for new home buyers,” said Frank Martell, president and CEO of CoreLogic. “CoreLogic’s Market Conditions Indicator has identified nearly one-half of the 50 largest metropolitan areas as overvalued. Often buyers are lulled into thinking these high-priced markets will continue, but we find that overvalued markets will tend to have a slowdown in price growth.”

CoreLogic considers a market overvalued when home prices are at least 10 percent higher than the long-term, sustainable level. High demand makes the likelihood of a national home price decline very slim, but certain markets could see prices cool if supply grows or if there is a hit to the local economy and local employment.

In any case, the more home buyers stretch, the more house-poor they become, and the less money they have to spend in the rest of the economy.

With no relief in either inventory or home price appreciation in sight, the housing market is likely to become even more competitive this year.

At some point, however, there will come a breaking point when sales slow, which is already beginning to happen in some cities. Home prices usually lag sales, so if history holds true, price gains should start to ease next year.

(video interview)

Source: By Diana Olick | CNBC

Economists Who Push Inflation Stunned That Rising Home Prices Have Put Buyers Deeper Into Debt

Once again, when the government intervenes – this time in housing – the left hand is starting a fire that the right hand is trying to put out. Rising prices for homes are once again pricing out prime borrowers and nobody can “figure out” why this is happening.

It is news like this article reported this morning by the Wall Street Journal that continues to perpetuate the hilarious notion of Keynesian economics as giving a job to one man digging a hole and another job to another man filling it, simply so that they both have jobs.

There is nothing funnier (or sadder) than “economists” struggling to understand how housing prices got so high and why people are taking on more debt in order to purchase them. However, that is the great mystery that the Wall Street Journal reported on Tuesday morning, making note of the fact that people are “stretching“ in order to purchase homes. What’s the solution to this problem? How about just easing lending standards again? After all, what could go wrong?

Apparently blind to the obvious – that forced inflation could amazingly make things more expensive relative to income – “economists” have hilariously blamed this price/debt delta on lack of supply. Of course, no one has mentioned the credit worthiness of borrowers getting worse or the fact that homes prices are being manipulated in order to offer home ownership to people who otherwise may not be in the market.

More Americans are stretching to buy homes, the latest sign that rising prices are making homeownership more difficult for a broad swath of potential buyers.

Roughly one in five conventional mortgage loans made this winter went to borrowers spending more than 45% of their monthly incomes on their mortgage payment and other debts, the highest proportion since the housing crisis, according to new data from mortgage-data tracker CoreLogic Inc. That was almost triple the proportion of such loans made in 2016 and the first half of 2017, CoreLogic said.

Economists said rising debt levels are a symptom of a market in which home prices are rising sharply in relation to incomes, driven in part by a historic lack of supply that is forcing prices higher.

The “lack of supply” argument is just wonderful – a bunch of “economists” finding a basic free market capitalism solution to a problem that has nothing to do with free market capitalism. Perhaps “economists” can also argue that building more, despite the lack of prime borrower demand, will also have the added benefit of puffing up GDP. From there, it’s only a couple more steps down the primrose path that leads to China’s ghost cities.

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And of course, people are worried that we could have a “weak selling season” upcoming. In a free market economy, weakness is necessary and normal. In Keynesian theory, it’s the devil incarnate. The Wall Street Journal continued:

Real-estate agents worry that buyers’ weariness from being priced out of the market could make this one of the weakest spring selling seasons in recent years.

Consumers are growing more optimistic about the economy and their personal financial prospects but less hopeful that now is the right time to buy a home, according to results of a survey released in late March by the National Association of Realtors.

At the same time, the average rate for a 30-year, fixed-rate mortgage has risen to 4.40% as of last week from 3.95% at the beginning of the year, according to Freddie Macputting still more pressure on affordability.

These factors “are working against affordability and that’s why you get the pressure to ease credit standards,” said Doug Duncan, chief economist at Fannie Mae. He said that pressure has to be balanced against the potential toll if underqualified buyers eventually default on their mortgages.

CoreLogic studied home-purchase loans that generally meet standards set by Fannie Mae and Freddie Mac, the federally sponsored providers of 30-year mortgage financing.

The amount of these loans packaged and sold by Fannie and Freddie increased 73% in the second half of 2017, compared with the first half of the year, according to Inside Mortgage Finance, an industry research group. In that same period, overall new mortgages rose 15%.

As if the signs weren’t clear enough that manipulating the economy and manipulating the housing market has a detrimental effect, the article continued that Fannie Mae and Freddie Mac are “experimenting with how to make homeownership more affordable, including backing loans made by lenders who agree to help pay down a buyer’s student debt“. Sure, solve one government subsidized shit show (student loan debt) with another one!

Is it any wonder that the entire supply and demand environment for housing has been thrown completely out of order?  On one hand, the government wants to make housing affordable so that everybody can have it, which closely resembles socialism. On the other hand, they are targeting prices to rise 2% every single year and claim that this is normal and healthy economic policy that we should all be buying into and applauding. The left hand doesn’t know what the right hand is doing!

We were on this case back in October 2017 when we wrote an article pointing out that home prices had again eclipsed their highest point prior to the financial crisis. We knew this was coming. We at the time that the ratio of the trailing twelve month averages of median new home sale prices to median household income in the U.S. had risen to an all time high of 5.454, which following revisions in the data for new home sale prices, was recorded in July 2017. The initial value for September 2017 is 5.437.

In other words, the median new home in the US has never been more unaffordable in terms of current income.

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Here we are 6 months later and “economists” are just figuring this out. What’s wrong with this picture?

What’s really happening is clear. Instead of letting the free market determine the pricing and availability of housing, the government has continued to try and manipulate the market in order to give everyone a house. This is simply going to lead to the same type of behavior that led Fannie Mae and Freddie Mac to fail during the housing crisis.

If we are going to have free market capitalism, the reality of the situation is that not everybody is going to own a house.

Furthermore, while there are many benefits to owning a house, there are also many reasons why people rent. Peter Schiff, for instance, often makes the case that renting is generally worth it because you’re saving yourself on upkeep and it allows you to be flexible with where you live and when you have the opportunity to move. He himself rents property for these reasons, which he often notes in his podcast. Sure, there are some benefits of homeownership, namely that a homeowner is supposed to be building equity in something, but looking again at the situation we are in today, is it worth investing in the equity of a home that might see its price crash significantly again, similar to the way housing prices did in 2008?

The government is creating both the problem and the solution here and instead of trying to continually fix the housing market, they should just keep their nose out of it and allow the free market to determine who should own a house and at what price. Call us crazy, but we don’t think that’s going to happen.

Source: ZeroHedge

How Much Income You Need to Afford the Average Home in Every State

The housing market has not only recovered its pre-recession levels, but some observers are actually starting to worry about yet another housing bubble. Housing prices are on the rise, thanks in large part to extremely tight inventory, so it’s worth asking: are potential home buyers getting priced out of the market? The answer depends on where they live and how much money they make.

https://cdn.howmuch.net/articles/salary-need-to-afford-home-2018-8426.png(click here for larger image)

We collected average home prices for every state from Zillow which we then plugged into a mortgage calculator to figure out monthly payments. Remember, mortgage payments consist of both the principal and the interest for the loan. The interest rate we used varied from 4 to 5% in each state, depending on the market. The lower the interest rate, the lower the monthly payment. To keep things simple, we assumed buyers could contribute a 10% down payment. Another thing to keep in mind is that financial advisors commonly recommend the total cost of housing take up no more than 30% of gross income (the amount before taxes, retirement savings, etc.). Using this rule as our benchmark, we calculated the minimum salary required to afford the average home in each state.

Top Five Places Where You Need the Highest Salaries to Afford the Average Home

1. Hawaii: $153,520 for a house worth $610,000

2. Washington, DC: $138,440 for a house worth $549,000

3. California: $120,120 for a house worth $499,900

4. Massachusetts: $101,320 for a house worth $419,900

5. Colorado: $100,200 for a house worth $415,000

Top Five Places Where You Need the Lowest Salaries to Afford the Average Home

1. West Virginia: $38,320 for a house worth $149,500

2. Ohio: $38,400 for a house worth $149,900

3. Michigan: $40,800 for a house worth $160,000

4. Arkansas: $41,040 for a house worth $161,000

5. Missouri: $42,200 for a house worth $165,900

Our map creates a quick snapshot of housing affordability across the United States. There are several pockets in which only the upper middle class and above can afford to own even the average home, most notably across the West and in the Northeast. There are only two states west of the Mississippi River where a worker with an annual salary under $40,000 can afford a mid-level home:  Missouri and Oklahoma. Colorado stands out as the only landlocked state requiring a significant amount of income ($100,200), thanks in large part to the housing market around Denver.

Homes tend to be more affordable in the eastern half of the country, with a notable pocket of “green” (less expensive) states located in the upper Midwest. The North is generally more affordable than the South and the typical home is significantly easier to buy in places like Michigan or Ohio than in Louisiana or Arkansas.  Additionally, our map indicates that workers can more easily afford homes in the East than in the West, which is surprising given how much more land is available out West. It is important to note that there are certainly deep pockets of poverty in all of these places, which suggests that our map obscures the inequality behind averages.

The best takeaway from our map is that housing remains affordable in large swaths of the country, even though there will always be places like California and New York where there is simply too much demand for the available inventory. Thankfully, that doesn’t mean that buying a home is suddenly out of reach for average Americans in Ohio or Mississippi, for example.

Source: HowMuch

In Nearly 70% Of US Counties, The Average Worker Can’t Afford To Buy A Home

Housing, as we’ve pointed out in the past, is perhaps the most reliable bellwether of widening economic inequality in the US. And in its latest quarterly report on housing affordability in the US, ATTOM discovered that median-priced homes aren’t affordable to average wage earners in an astounding 68% of US housing markets.

In its report, the company calculated affordability by incorporating the amount of income needed to make monthly home payments – including mortgage payments, property tax payments and insurance – on a median-priced home, assuming a 3% down payment and a 28% maximum “front-end” debt-to-income ratio.

That required income was then compared with the median home price.

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The 304 counties where a median-priced home in the first quarter was not affordable for average wage earners included Los Angeles County, California; Maricopa County (Phoenix), Arizona; San Diego County, California; Orange County, California; and Miami-Dade County, Florida. Meanwhile, the 142 counties (32 percent of the 446 counties analyzed in the report) where a median-priced home in the first quarter was still affordable for average wage earners included Cook County (Chicago), Illinois; Harris County (Houston), Texas; Dallas County, Texas; Wayne County (Detroit), Michigan; and Philadelphia County, Pennsylvania.

https://www.zerohedge.com/sites/default/files/inline-images/2018.03.28attomtwo.JPG?itok=H0lrGUce

Already, the “hottest” housing markets are seeing an exodus of working- and middle-class individuals who can no longer afford to pay the high rents – let along afford to set aside enough money for a down payment.

Eight of the top 10 counties with the highest median home prices in Q1 2018 posted negative net migration in 2017: Kings County (Brooklyn), New York (25,484 net migration decrease); Santa Clara County (San Jose), California (5,559 net migration decrease); New York County (Manhattan), New York (3,762 net migration decrease); Orange County, California (3,750 net migration decrease); and San Mateo, Marin, Napa and Santa Cruz counties in Northern California.

Furthermore, ATTOM’s data found that this problem is getting worse, not better, with 41% of housing markets less affordable than their historical average during the first quarter. That’s up from 35% the quarter before.

Meanwhile, a staggering 73% of markets posted worsening affordability compared with a year ago, including Los Angeles, Cook County (home to Chicago), Maricopa County (Phoenix) and Kings County (Brooklyn).

https://www.zerohedge.com/sites/default/files/inline-images/2018.03.28attommthree.png?itok=eqPPxf-3

The counties where the average wage earner would need to spend the highest share of their income to buy a median-priced home are Baltimore, Bibb County (Macon, Georgia) and Wayne County (Detroit).

Continuing with the trend of home prices rising more than twice as quickly as wages, home-price appreciation outpaced wage growth in 83% of housing markets.

When Fed Chairman Jerome Powell warned last month that “valuations are still elevated across a range of asset classes” and that he fears “signs of rising non-financial leverage” it’s possible that he was still understating the problem.

Source: ZeroHedge

 

US Home Prices Surge Most Since 2014

For the 29th month in a row, US home prices rose at a faster pace than incomes with November prices rising a better than expected 6.41% – the highest since July 2014.

The 20-City Composite rose 6.41% YoY in November (above the 6.30% expectations)

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The 20-City Composite price index is within 1% of its record highs from 2006…

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“Top”? or “Breakout”?

Source: ZeroHedge