15 ms·

This is the United States’ third biggest housing boom in the modern era

155 points by olivermarks 8y ago

monkmartinez 8y ago
It is already popping... like it did last time and like it will do next time. Welcome to the financialization of everything! Look here for more data: http://www.doctorhousingbubble.com/ http://www.doctorhousingbubble.com/
- solotronics 8y ago
  I wonder if the application of AI to finance would effectively smooth out bubble/bust scenarios. If you really think about it a bubble is when assets are overvalued usually due to herd mentality and fear of missing out. If AI we're more involved it would be able to short sell when something was overvalued and buy when it is undervalued. This is the essesnce of good investment and you would think machine learning would be able to gather much more raw information than any person and come to these conclusions. I think this is what Renaissance Investments does to make such amazing returns.
  - NTDF9 8y ago
    AI wouldn't smooth out bubble because bubbles are opportunities for a few to make wealth at the expense of others. Bubble in America (at least the recent ones since Greenspan) are all down to Fed being asked to bring the society to full employment (which is so backwards as a law because a central bank cannot bring full employment). The bubbles also get created because the real risk takers (big investment funds, banks, companies) are not allowed to take losses that the masses will take. As an example, let GE, GM, hedge funds, banks who lent outsized mortgages take the loss this time while interest rates rise to "normal". Sure a few people will lose jobs but we've created this hazardous situation right now where morally bankrupt corporations are backstopped by tax payers because they're too big to fail while the individual will lose their house if they can't pay mortgages. Companies have to be allowed to fail. Fed needs to maintain price stability on CPI and assets (which they couldn't after the last bubble).
    - dahdum 8y ago
      Are you suggesting individuals should be able to default on the mortgage but still get to keep the house? Or that we should let the mortgages foreclose and people get kicked out, but not perform quantitative easing in that recession?
      - NTDF9 8y ago
        I'm suggesting taking capitalism to some true form. Let badly managed companies fail, let badly managed houses of individuals get foreclosed. For innocent individuals, create a social security net. Instead of bailing out companies or keeping interest rates lower (as all the rich are asking right now so that stock market bubble stays up), use that same money to bail out underwater individuals in some way. Right now, the whole market is a perverted system saving the rich every time. That is not healthy at all.
        Latteland 8y ago
        GE could fail. They are on the way down.
        AnthonyMouse 8y ago
        > Instead of bailing out companies or keeping interest rates lower (as all the rich are asking right now so that stock market bubble stays up), use that same money to bail out underwater individuals in some way. Keeping interest rates lower was how they bailed out underwater individuals. Lower interest rates stimulate demand for housing, shoring up housing prices for the people who were underwater. Of course, that reinflated the housing bubble, so here we are again. What they need to do now is to slowly raise interest rates. Raising them quickly would put us right back to 2008. Raising them slowly lets housing prices decline over a period of years at rate that doesn't instantly put everyone deep underwater again, or kick every adjustable rate mortgage payment above the level that people start defaulting again.
        NTDF9 8y ago
        > Keeping interest rates lower was how they bailed out underwater individuals. Lower interest rates stimulate demand for housing, shoring up housing prices for the people who were underwater. Of course, that reinflated the housing bubble, so here we are again. No. I meant using TARP money to wipe out a portion of that debt or create jobs instead of QE. The banks did not need bailing out. Certainly the execs shouldve been arrested. Because of decisions last time around, the execs take risks with impunity now.
  - hakfoo 8y ago
    I'd suspect that a major difficulty of applying AI to real estate is limited fungibility and liquidity. With a stock or currency, there's usually enough of a live market that you can sell quickly at roughly market prices. Much of this is due to fungibility-- one share of INTC is worth the same as any other, so they can trade sight unseen with narrow spreads. With real estate, the AI dashboard can flash and beep and scream "Sell the houses in Roanoke now!" but there's no easy way out. You're either spending weeks or months closing out individual retail sales, and if anything goes wrong you're back to square one while the price is deflating around you, or you try to sell it commercially sight-unseen, for which you're going to take a major price haircut. Might work somewhat better with commercial real-estate which seems a bit more oriented to grading and classification to allow more sight-unseen trading.
  - brownbat 8y ago
    Matt Levine has a half-joking article on whether or not automated trading would one day provide the ultimate fulfillment of Marxism: https://www.bloomberg.com/opinion/articles/2016-08-24/are-index-funds-communist https://www.bloomberg.com/opinion/articles/2016-08-24/are-in... If you believe that AI will get better at allocating capital over time, and that central planners are historically awful because of human flaws (from self-interest to lack of information)... then you might one day reasonably pine for self-driving economies. Asimov slipped this general idea in some of his stories as well: https://en.wikipedia.org/wiki/The_Evitable_Conflict https://en.wikipedia.org/wiki/The_Evitable_Conflict Even if you think this idea is completely silly (there's an argument it is), the Levine article is still highly recommended, primarily because he's not evangelizing so much as just toying with the idea. It's a fun read.
    - mtgx 8y ago
      This kind of wishful thinking by people who dont realize there will always a human controlling that AI.
      - mythrwy 8y ago
        I think maybe that is a wishful idea from a human :)
  - codexon 8y ago
    It is already being applied to finance. The problem is that a huge part of the market is based on emotion, so the AI makes it worse and not better. When the proverbial knife is dropping, you don't want to catch it while it is in free fall, it will likely plunge below "fair value" in a panic. Quants know this and most have programmed/taught their systems to pull out of the market or short when volatility goes up. It is happening right now. Liquidity since February has shriveled up.
  - mtgx 8y ago
    AI tends to "over-optimize" as we know from the paper clip theory too. It's likely to make booms and busts even more drastic.
  - visarga 8y ago
    Each recession is different, why do you think AI would be able to predict them? Where would it learn to predict from? When using AI on a time series, it is necessary to have sufficient past data.
  - ThrustVectoring 8y ago
    Merely having a correct investment thesis isn't enough to make money - you have to also get the trade timing and execution correct, and bubbles have a nasty tendency to stay inflated long enough to squeeze out the shorts. Like, the more profitable plays are often the ones that contribute to the boom/bust cycle. In the 2008 crisis, the big winners were people who took out as much mortgage debt as possible and aggressively did cash-out refinancing, ending up strategically defaulting on houses they got more money out of than they put in. When you're in a bubble, people tend to assume that the worst-case scenarios won't happen, so they'll extend credit that you cannot pay out in those scenarios, and you wind up getting some free expected value and positive skew that way.
    - im3w1l 8y ago
      Now that's a depressing perspective.
maxxxxx 8y ago
I believe as long as there are people who make much more money than they can invest productively in non-housing they will keeping buying houses and drive prices up. That's one of the effects of income inequality. The people who are on the winning side make more money than they can invest.
- atomical 8y ago
  There are always investment opportunities outside of housing. Just look at Warren Buffett and Charlie Munger.
  - maxxxxx 8y ago
    Why do a lot of the millionaires and billionaires buy overpriced housing in London, Vancouver and other places instead of investing in something else? Speaking about too much money: Companies like Apple sit on hundreds of billions of dollars and don't know what to do with it. Theoretically they should invest it in new profitable products but they don't.
    - nopinsight 8y ago
      Can/do any of these companies with excess cash invest in the housing market perhaps through funds like REIT (for better liquidity than direct purchases)? It looks like a good diversification from bonds if chosen judiciously but there could be regulatory reasons not to do it.
    - crooked-v 8y ago
      > Why do a lot of the millionaires and billionaires buy overpriced housing in London, Vancouver and other places instead of investing in something else? Having a big house is nice. Living in a major city is nice. The combination of the two is very nice, but expensive.
      - PeterisP 8y ago
        The whole point of questioning "millionaires and billionaires buy overpriced housing in London, Vancouver and other places" is that it's not about living there - overwhelmingly, they just buy housing. They don't live in these places, they don't intend to live in these places not even when visiting that city, they either get rented out but often simply stay empty. In the top end housing of e.g. London the prices get set by people for whom it's purely an investment, not about having a fancy home.
deleted 8y ago
[deleted]
Animats 8y ago
It's already collapsing in the SF Bay Area. "PRICE REDUCED" signs are appearing. The bubble is popping. One real estate investor and one Realtor I know admit that prices have been dropping for most of 2018.
- baddox 8y ago
  Please tell my landlord this.
  - TomMckenny 8y ago
    Unfortunately, idealized market theories notwithstanding, rent goes up in recessions as well as upswings and independent of vacancy rates. https://www.census.gov/housing/hvs/files/currenthvspress.pdf https://www.census.gov/housing/hvs/files/currenthvspress.pdf
    - wbl 8y ago
      That's because we still don't build enough. Watch as SB 50 dramatically changes rents in CA.
      - TomMckenny 8y ago
        I hope so with all my heart. But for example, this[0] (triangular!) lot is 1.6 million. So developed or not, low rents seem unlikely even in that neighborhood. At the risk of heresy, dare I ask if real-estate markets as they currently work have failed their communities? [0] https://www.google.com/maps/@37.8134181,-122.2745241,3a,75y,333.3h,72.58t/data=!3m6!1e1!3m4!1srZEyh2MlevQi5GVwr31vAA!2e0!7i16384!8i8192 https://www.google.com/maps/@37.8134181,-122.2745241,3a,75y,...
- HillaryBriss 8y ago
  > The bubble is popping. ... or just deflating a tad before it stabilizes and waits for the next big inflation.
gonvaled 8y ago
Maybe it is not an anomaly, but a message: the huge amount of liquidity pumped into the system is going to break soon in the form of hyperinflation. [0] [0] https://www.google.de/amp/s/seekingalpha.com/amp/article/4045250-velocity-money-mean-u-s-inflation https://www.google.de/amp/s/seekingalpha.com/amp/article/404...
- partiallypro 8y ago
  The Fed is planning to shrink its balance sheet by $2 Trillion between now and 2022. They've already shrunk it by almost $350 billion (basically, shredding digital cash.) It is more likely the global economy is more fragile than the Fed realizes (due to China) and we will experience asset deflation, not inflation. We likely (imo) won't see any significant velocity of money changes in the US until well after the unwind is complete. Because banks, while flush with cash, are still hesitant to lend during the unwind and high yield credit markets are not doing well at all. I suspect we could see a mild recession with little Fed action other than just pausing their unwind for a while, unless there is some serious crisis (which I can't see happening unless the high yield credit market were to completely implode.) One problem that could allow that to happen, is if oil were to completely and utterly nosedive and make a lot of oil service companies with high debt loads default. Again, I doubt this. I am not a doom and gloomer, I think we are about to enter a recession/bear market but the "great recession" has gotten something in people's heads that every recession must be a systemic collapse instead of a resource reallocation...
  - ryacko 8y ago
    If we have deflation with rising incomes, there would be no issue. If there is deflation with declining incomes, it would create a downward spiral, potentially.
    - partiallypro 8y ago
      Real incomes have fallen during/after virtually every US recession; at least in -real- terms. Nominal incomes almost never fall and just remain flat. Monetary theory is complex, but what the flow of credit remains in tact. https://fred.stlouisfed.org/series/MEHOINUSA672N https://fred.stlouisfed.org/series/MEHOINUSA672N https://fred.stlouisfed.org/series/MEHOINUSA646N https://fred.stlouisfed.org/series/MEHOINUSA646N The only way I can see hyperinflation in the US is some cataclysm or inability to service debt through normal means. Most countries that have hyperinflation generally have massive debt loads they are printing out of with no economic output to back it up. They also are usually very centrally planned economies or war torn.
pitaj 8y ago
Everything about our current economy looks like one enormous bubble about to pop, and I think it's going to be much worse than 2008, depending on what actions the government takes. I see malinvestment everywhere, from venture capital to the recent machine learning and cryptocurrency trends. Edit: As a young person, it scares me.
- RA_Fisher 8y ago
  When central banks print money it destroys the connection of money and wealth. It degrades the signal. Personally I love Bitcoin bc it protects against this. Sure, it may be falling while the Fed tightens, but the Fed prints more often than it tightens.
  - Latteland 8y ago
    But bitcoins and other cryptocurrencies have fallen far more than dollars have in any short timeframe. The best answer is diversify, stocks in different areas, bonds, cash, maybe real estate.
    - RA_Fisher 8y ago
      Well sure, because there are fewer dollars. They're being decreased and hence it takes less dollars to purchase bitcoin. Yes indeed re: diversification.
- breatheoften 8y ago
  I agree completely! The amount of misallocated capital and the rate with which it is flowing toward more productive uses is extremely disturbing. There should be ten or a hundred well capitalized Tesla competitors by now rather than all this idiotic old money chasing (fearfully) after dying economies ... It’s very disturbing to think how actively harmful these misallocations are — the amount of money that still thinks an investment strategy that aims to protect the value of existing fossil fuel investment is a good use of capital ... pure blind delusion. We are well past the point where you can make more money by investing to extend the timeline of fossil fuel returns than you could make by accelerating yourself away from your fossil fuel investments ... somebody needs to remind the investment community about the value of skating to where the puck is going to be ...
dawhizkid 8y ago
As a 30 yo male who doesn’t intend to have kids, I’m wondering if it is a bad idea to buy a 1 bedroom in sf even though the math doesn’t seem to work out right now and 1 bedrooms historically do not appreciate as fast as multi bedroom homes.
- adamredwoods 8y ago
  I think this depends on your math. If you are willing to continually move to cheaper rents and invest your money to get better than X% year-over-year, then renting is a great option. The hidden value is in stability in having a home, which is very subjective.
- segmondy 8y ago
  buy a multi unit, you can have 1 or 2 rooms and rent out the rest.
  - afarrell 8y ago
    That sounds like a job
- lumost 8y ago
  Owning also helps close your natural short on housing. Your real cost of living gets eaten by inflation over time.
- sjg007 8y ago
  It's probably fine. Does the implied rent cover the mortgage?
dandare 8y ago
As a non native speaker, a "housing boom" sounds like a boom in number of houses, not a boom in the price of existing houses :)
- geoffpado 8y ago
  As a native speaker, I agree.
- ido 8y ago
  Swathes of unsold homes in places like Spain and Florida after the last bust suggest it can be both!
  - baybal2 8y ago
    That's still a far cry from 2.2 billion vacant square metres that China has, enough to rehouse the whole of California.
    - nopinsight 8y ago
      It sounds enormous until you consider their population size and urbanization rate. At the rate of 0.75% per year, it equals to 10.5 million people a year. Assuming 40 square metres per person, the stock only lasts about 5 years. In addition, real estate is the preferred investment vehicle among the older and on average wealthier segment of the population. "Urbanisation in China increased in speed following the initiation of the reform and opening policy. By the end of 2017, 59.4% of the total population lived in urban areas, a dramatic increase from 26% in 1990." https://en.m.wikipedia.org/wiki/Urbanization_in_China https://en.m.wikipedia.org/wiki/Urbanization_in_China
      - yostrovs 8y ago
        Is the housing stock growing or shrinking or staying the same?
      - Latteland 8y ago
        How many people can soak up that high priced unused real estate? Not that many. I expect there to eventually be a housing and infrastructure crash in China, but maybe they can absorb it because they are so large.
EGreg 8y ago
Time to get out while you still can. A lot of the current value is tied up in stuff that will implode like in 2006. The Fed has created another asset bubble. We are sitting on a powderkeg. But where to invest instead?
- hnarn 8y ago
  > But where to invest instead? There's literally nowhere you won't lose money when investing in a recession, the point is to find the place where you'll lose the least amount of money -- a.k.a. the place where you are most certain the price has bottomed out -- and go for it. Then wait 5-10 years.
  - EGreg 8y ago
    What about a basket of really promising startups or VCs?
    - rhexs 8y ago
      I presume this is a joke, but, if not, good luck. If you can pick the next Google reliably, you're presumably already worth tens of millions.
      - EGreg 8y ago
        How about a vanguard index of stoks
        Latteland 8y ago
        You need a mixture of assets. If you don't need your investments to live on (cause you've got a job and an affordable place to live), then follow the standard policy of different categories of stocks, plus other areas. In 2007-2009 I noticed that I lost as much in my retirement accounts as I put into them in those years, Ie the value at the end of the year after putting 20k was about the same as at the start. That was something that really reminded me that it was great and lucky to have a good job as a software engineer.
holdenc 8y ago
It would be nice to see an analysis of the cost to build over time. Obviously, if 5% YoY increase is the new method of valuation accepted by all (per the article) there must come a time when builders create new units and compete on price.
- isostatic 8y ago
  Not when the majority of the price is in the value of land.
ransom1538 8y ago
No. The author here is cherry picking a timeframe [2012-2018]. Nice cherry pick. Unless you were smart enough to buy in 2012 that is gone: forever. Home prices have barley hit their 2008 prices. These are prices ten years ago. If a stock hit its price from ten years ago I wouldn't consider it a "boom". If you are a zillow user, look around at normal cities [Not manhattan,SF, or LA] linked below. If you have a minute, look at "Price / Tax History", and see what they sold at 2006/7/8. I see this pattern all over the US. I could add 20 more if you need. To me we are almost back to normal. Sure this is anecdotal but, averaging all US home prices with a cherry pick is just as silly. https://www.zillow.com/homedetails/5435-White-Heron-Pl-Oviedo-FL-32765/58182051_zpid/?fullpage=true https://www.zillow.com/homedetails/5435-White-Heron-Pl-Ovied... https://www.zillow.com/homedetails/6241-Gobernadores-Ln-Carmichael-CA-95608/67821430_zpid/?fullpage=true https://www.zillow.com/homedetails/6241-Gobernadores-Ln-Carm... https://www.zillow.com/homedetails/6600-Sutter-Ave-Carmichael-CA-95608/64591452_zpid/?fullpage=true https://www.zillow.com/homedetails/6600-Sutter-Ave-Carmichae...
- nicholas73 8y ago
  Do you have a reason to consider 2008 as normal?
  - ransom1538 8y ago
    normal: %3-%5 yoy increases, basically a little under the mortgage rate. 2008 wasn’t normal that isn’t what I meant.
    - humanrebar 8y ago
      If housing is overvalued, mean returns lower than inflation would be better, though admittedly not "normal".
    - TravelAndFood 8y ago
      Yeah, I took your comment to mean something like "2008 wasn't normal. But imagine a "normal" price in 2008, and how it would have risen normally over ten years. Then maybe it would reach the actual 2008 price, which is about what we have in 2018." Not sure if that's correct, but sounds plausible.
sjg007 8y ago
It's funny cause I just bought my house in 2016 and now prices are declining.. Can't win.
bsenftner 8y ago
Housing Booms is the United States longest running con. It makes no sense, and is so completely disconnected from reality it creates a separate one most American's participate: the housing lottery for retirement.
devonkim 8y ago
Case Shiller index is the highest on record at the moment https://fred.stlouisfed.org/series/csushpinsa https://fred.stlouisfed.org/series/csushpinsa
- pbourke 8y ago
  In a normally functioning housing market (with a reasonable amount of inflation), wouldn’t this be the norm?
  - devonkim 8y ago
    The index is based upon median income and median home sale price, not upon house prices as an absolute value. It’s an indicator of affordability. I don’t know if indexes are comparable across different countries and what they would mean.
fouc 8y ago
A recession is coming in the next 2-3 years due to demographics (peak baby boomer retiree is happening right around now). I think part of the housing boom is caused by the retirees.
- pessimizer 8y ago
  How? Retirees aren't buying houses, they're selling them.
- Latteland 8y ago
  A recession is due for lots of reasons, like the boom has continued this long because we juiced the economy with a bunch of tax cuts for rich people and companies that are basically a sugar high. At least since we raised interest rates we'll be able to cut them to stimulate the economy. On top of that sugar high we are pushing it down with stupid tariffs on most of our major allies. And growth periods in our history don't usually run this far. I think our future growth in the us will be significantly retarded because of high student loan debt. That gets some attention here at hacker news, but I don't see 'regular people' talking about it much.

155 points by olivermarks 8y ago

It is already popping... like it did last time and like it will do next time. Welcome to the financialization of everything! Look here for more data: http://www.doctorhousingbubble.com/ http://www.doctorhousingbubble.com/

solotronics 8y ago
I wonder if the application of AI to finance would effectively smooth out bubble/bust scenarios. If you really think about it a bubble is when assets are overvalued usually due to herd mentality and fear of missing out. If AI we're more involved it would be able to short sell when something was overvalued and buy when it is undervalued. This is the essesnce of good investment and you would think machine learning would be able to gather much more raw information than any person and come to these conclusions. I think this is what Renaissance Investments does to make such amazing returns.
- NTDF9 8y ago
  AI wouldn't smooth out bubble because bubbles are opportunities for a few to make wealth at the expense of others. Bubble in America (at least the recent ones since Greenspan) are all down to Fed being asked to bring the society to full employment (which is so backwards as a law because a central bank cannot bring full employment). The bubbles also get created because the real risk takers (big investment funds, banks, companies) are not allowed to take losses that the masses will take. As an example, let GE, GM, hedge funds, banks who lent outsized mortgages take the loss this time while interest rates rise to "normal". Sure a few people will lose jobs but we've created this hazardous situation right now where morally bankrupt corporations are backstopped by tax payers because they're too big to fail while the individual will lose their house if they can't pay mortgages. Companies have to be allowed to fail. Fed needs to maintain price stability on CPI and assets (which they couldn't after the last bubble).
  - dahdum 8y ago
    Are you suggesting individuals should be able to default on the mortgage but still get to keep the house? Or that we should let the mortgages foreclose and people get kicked out, but not perform quantitative easing in that recession?
    - NTDF9 8y ago
      I'm suggesting taking capitalism to some true form. Let badly managed companies fail, let badly managed houses of individuals get foreclosed. For innocent individuals, create a social security net. Instead of bailing out companies or keeping interest rates lower (as all the rich are asking right now so that stock market bubble stays up), use that same money to bail out underwater individuals in some way. Right now, the whole market is a perverted system saving the rich every time. That is not healthy at all.
      - Latteland 8y ago
        GE could fail. They are on the way down.
      - AnthonyMouse 8y ago
        > Instead of bailing out companies or keeping interest rates lower (as all the rich are asking right now so that stock market bubble stays up), use that same money to bail out underwater individuals in some way. Keeping interest rates lower was how they bailed out underwater individuals. Lower interest rates stimulate demand for housing, shoring up housing prices for the people who were underwater. Of course, that reinflated the housing bubble, so here we are again. What they need to do now is to slowly raise interest rates. Raising them quickly would put us right back to 2008. Raising them slowly lets housing prices decline over a period of years at rate that doesn't instantly put everyone deep underwater again, or kick every adjustable rate mortgage payment above the level that people start defaulting again.
        NTDF9 8y ago
        > Keeping interest rates lower was how they bailed out underwater individuals. Lower interest rates stimulate demand for housing, shoring up housing prices for the people who were underwater. Of course, that reinflated the housing bubble, so here we are again. No. I meant using TARP money to wipe out a portion of that debt or create jobs instead of QE. The banks did not need bailing out. Certainly the execs shouldve been arrested. Because of decisions last time around, the execs take risks with impunity now.
- hakfoo 8y ago
  I'd suspect that a major difficulty of applying AI to real estate is limited fungibility and liquidity. With a stock or currency, there's usually enough of a live market that you can sell quickly at roughly market prices. Much of this is due to fungibility-- one share of INTC is worth the same as any other, so they can trade sight unseen with narrow spreads. With real estate, the AI dashboard can flash and beep and scream "Sell the houses in Roanoke now!" but there's no easy way out. You're either spending weeks or months closing out individual retail sales, and if anything goes wrong you're back to square one while the price is deflating around you, or you try to sell it commercially sight-unseen, for which you're going to take a major price haircut. Might work somewhat better with commercial real-estate which seems a bit more oriented to grading and classification to allow more sight-unseen trading.
- brownbat 8y ago
  Matt Levine has a half-joking article on whether or not automated trading would one day provide the ultimate fulfillment of Marxism: https://www.bloomberg.com/opinion/articles/2016-08-24/are-index-funds-communist https://www.bloomberg.com/opinion/articles/2016-08-24/are-in... If you believe that AI will get better at allocating capital over time, and that central planners are historically awful because of human flaws (from self-interest to lack of information)... then you might one day reasonably pine for self-driving economies. Asimov slipped this general idea in some of his stories as well: https://en.wikipedia.org/wiki/The_Evitable_Conflict https://en.wikipedia.org/wiki/The_Evitable_Conflict Even if you think this idea is completely silly (there's an argument it is), the Levine article is still highly recommended, primarily because he's not evangelizing so much as just toying with the idea. It's a fun read.
  - mtgx 8y ago
    This kind of wishful thinking by people who dont realize there will always a human controlling that AI.
    - mythrwy 8y ago
      I think maybe that is a wishful idea from a human :)
- codexon 8y ago
  It is already being applied to finance. The problem is that a huge part of the market is based on emotion, so the AI makes it worse and not better. When the proverbial knife is dropping, you don't want to catch it while it is in free fall, it will likely plunge below "fair value" in a panic. Quants know this and most have programmed/taught their systems to pull out of the market or short when volatility goes up. It is happening right now. Liquidity since February has shriveled up.
- mtgx 8y ago
  AI tends to "over-optimize" as we know from the paper clip theory too. It's likely to make booms and busts even more drastic.
- visarga 8y ago
  Each recession is different, why do you think AI would be able to predict them? Where would it learn to predict from? When using AI on a time series, it is necessary to have sufficient past data.
- ThrustVectoring 8y ago
  Merely having a correct investment thesis isn't enough to make money - you have to also get the trade timing and execution correct, and bubbles have a nasty tendency to stay inflated long enough to squeeze out the shorts. Like, the more profitable plays are often the ones that contribute to the boom/bust cycle. In the 2008 crisis, the big winners were people who took out as much mortgage debt as possible and aggressively did cash-out refinancing, ending up strategically defaulting on houses they got more money out of than they put in. When you're in a bubble, people tend to assume that the worst-case scenarios won't happen, so they'll extend credit that you cannot pay out in those scenarios, and you wind up getting some free expected value and positive skew that way.
  - im3w1l 8y ago
    Now that's a depressing perspective.

maxxxxx 8y ago

I believe as long as there are people who make much more money than they can invest productively in non-housing they will keeping buying houses and drive prices up. That's one of the effects of income inequality. The people who are on the winning side make more money than they can invest.

atomical 8y ago
There are always investment opportunities outside of housing. Just look at Warren Buffett and Charlie Munger.
- maxxxxx 8y ago
  Why do a lot of the millionaires and billionaires buy overpriced housing in London, Vancouver and other places instead of investing in something else? Speaking about too much money: Companies like Apple sit on hundreds of billions of dollars and don't know what to do with it. Theoretically they should invest it in new profitable products but they don't.
  - nopinsight 8y ago
    Can/do any of these companies with excess cash invest in the housing market perhaps through funds like REIT (for better liquidity than direct purchases)? It looks like a good diversification from bonds if chosen judiciously but there could be regulatory reasons not to do it.
  - crooked-v 8y ago
    > Why do a lot of the millionaires and billionaires buy overpriced housing in London, Vancouver and other places instead of investing in something else? Having a big house is nice. Living in a major city is nice. The combination of the two is very nice, but expensive.
    - PeterisP 8y ago
      The whole point of questioning "millionaires and billionaires buy overpriced housing in London, Vancouver and other places" is that it's not about living there - overwhelmingly, they just buy housing. They don't live in these places, they don't intend to live in these places not even when visiting that city, they either get rented out but often simply stay empty. In the top end housing of e.g. London the prices get set by people for whom it's purely an investment, not about having a fancy home.

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Animats 8y ago

It's already collapsing in the SF Bay Area. "PRICE REDUCED" signs are appearing. The bubble is popping. One real estate investor and one Realtor I know admit that prices have been dropping for most of 2018.

baddox 8y ago
Please tell my landlord this.
- TomMckenny 8y ago
  Unfortunately, idealized market theories notwithstanding, rent goes up in recessions as well as upswings and independent of vacancy rates. https://www.census.gov/housing/hvs/files/currenthvspress.pdf https://www.census.gov/housing/hvs/files/currenthvspress.pdf
  - wbl 8y ago
    That's because we still don't build enough. Watch as SB 50 dramatically changes rents in CA.
    - TomMckenny 8y ago
      I hope so with all my heart. But for example, this[0] (triangular!) lot is 1.6 million. So developed or not, low rents seem unlikely even in that neighborhood. At the risk of heresy, dare I ask if real-estate markets as they currently work have failed their communities? [0] https://www.google.com/maps/@37.8134181,-122.2745241,3a,75y,333.3h,72.58t/data=!3m6!1e1!3m4!1srZEyh2MlevQi5GVwr31vAA!2e0!7i16384!8i8192 https://www.google.com/maps/@37.8134181,-122.2745241,3a,75y,...
HillaryBriss 8y ago
> The bubble is popping. ... or just deflating a tad before it stabilizes and waits for the next big inflation.

gonvaled 8y ago

Maybe it is not an anomaly, but a message: the huge amount of liquidity pumped into the system is going to break soon in the form of hyperinflation. [0] [0] https://www.google.de/amp/s/seekingalpha.com/amp/article/4045250-velocity-money-mean-u-s-inflation https://www.google.de/amp/s/seekingalpha.com/amp/article/404...

partiallypro 8y ago
The Fed is planning to shrink its balance sheet by $2 Trillion between now and 2022. They've already shrunk it by almost $350 billion (basically, shredding digital cash.) It is more likely the global economy is more fragile than the Fed realizes (due to China) and we will experience asset deflation, not inflation. We likely (imo) won't see any significant velocity of money changes in the US until well after the unwind is complete. Because banks, while flush with cash, are still hesitant to lend during the unwind and high yield credit markets are not doing well at all. I suspect we could see a mild recession with little Fed action other than just pausing their unwind for a while, unless there is some serious crisis (which I can't see happening unless the high yield credit market were to completely implode.) One problem that could allow that to happen, is if oil were to completely and utterly nosedive and make a lot of oil service companies with high debt loads default. Again, I doubt this. I am not a doom and gloomer, I think we are about to enter a recession/bear market but the "great recession" has gotten something in people's heads that every recession must be a systemic collapse instead of a resource reallocation...
- ryacko 8y ago
  If we have deflation with rising incomes, there would be no issue. If there is deflation with declining incomes, it would create a downward spiral, potentially.
  - partiallypro 8y ago
    Real incomes have fallen during/after virtually every US recession; at least in -real- terms. Nominal incomes almost never fall and just remain flat. Monetary theory is complex, but what the flow of credit remains in tact. https://fred.stlouisfed.org/series/MEHOINUSA672N https://fred.stlouisfed.org/series/MEHOINUSA672N https://fred.stlouisfed.org/series/MEHOINUSA646N https://fred.stlouisfed.org/series/MEHOINUSA646N The only way I can see hyperinflation in the US is some cataclysm or inability to service debt through normal means. Most countries that have hyperinflation generally have massive debt loads they are printing out of with no economic output to back it up. They also are usually very centrally planned economies or war torn.

pitaj 8y ago

Everything about our current economy looks like one enormous bubble about to pop, and I think it's going to be much worse than 2008, depending on what actions the government takes. I see malinvestment everywhere, from venture capital to the recent machine learning and cryptocurrency trends. Edit: As a young person, it scares me.

RA_Fisher 8y ago
When central banks print money it destroys the connection of money and wealth. It degrades the signal. Personally I love Bitcoin bc it protects against this. Sure, it may be falling while the Fed tightens, but the Fed prints more often than it tightens.
- Latteland 8y ago
  But bitcoins and other cryptocurrencies have fallen far more than dollars have in any short timeframe. The best answer is diversify, stocks in different areas, bonds, cash, maybe real estate.
  - RA_Fisher 8y ago
    Well sure, because there are fewer dollars. They're being decreased and hence it takes less dollars to purchase bitcoin. Yes indeed re: diversification.
breatheoften 8y ago
I agree completely! The amount of misallocated capital and the rate with which it is flowing toward more productive uses is extremely disturbing. There should be ten or a hundred well capitalized Tesla competitors by now rather than all this idiotic old money chasing (fearfully) after dying economies ... It’s very disturbing to think how actively harmful these misallocations are — the amount of money that still thinks an investment strategy that aims to protect the value of existing fossil fuel investment is a good use of capital ... pure blind delusion. We are well past the point where you can make more money by investing to extend the timeline of fossil fuel returns than you could make by accelerating yourself away from your fossil fuel investments ... somebody needs to remind the investment community about the value of skating to where the puck is going to be ...

dawhizkid 8y ago

As a 30 yo male who doesn’t intend to have kids, I’m wondering if it is a bad idea to buy a 1 bedroom in sf even though the math doesn’t seem to work out right now and 1 bedrooms historically do not appreciate as fast as multi bedroom homes.

adamredwoods 8y ago
I think this depends on your math. If you are willing to continually move to cheaper rents and invest your money to get better than X% year-over-year, then renting is a great option. The hidden value is in stability in having a home, which is very subjective.
segmondy 8y ago
buy a multi unit, you can have 1 or 2 rooms and rent out the rest.
- afarrell 8y ago
  That sounds like a job
lumost 8y ago
Owning also helps close your natural short on housing. Your real cost of living gets eaten by inflation over time.
sjg007 8y ago
It's probably fine. Does the implied rent cover the mortgage?

dandare 8y ago

As a non native speaker, a "housing boom" sounds like a boom in number of houses, not a boom in the price of existing houses :)

geoffpado 8y ago
As a native speaker, I agree.
ido 8y ago
Swathes of unsold homes in places like Spain and Florida after the last bust suggest it can be both!
- baybal2 8y ago
  That's still a far cry from 2.2 billion vacant square metres that China has, enough to rehouse the whole of California.
  - nopinsight 8y ago
    It sounds enormous until you consider their population size and urbanization rate. At the rate of 0.75% per year, it equals to 10.5 million people a year. Assuming 40 square metres per person, the stock only lasts about 5 years. In addition, real estate is the preferred investment vehicle among the older and on average wealthier segment of the population. "Urbanisation in China increased in speed following the initiation of the reform and opening policy. By the end of 2017, 59.4% of the total population lived in urban areas, a dramatic increase from 26% in 1990." https://en.m.wikipedia.org/wiki/Urbanization_in_China https://en.m.wikipedia.org/wiki/Urbanization_in_China
    - yostrovs 8y ago
      Is the housing stock growing or shrinking or staying the same?
    - Latteland 8y ago
      How many people can soak up that high priced unused real estate? Not that many. I expect there to eventually be a housing and infrastructure crash in China, but maybe they can absorb it because they are so large.

EGreg 8y ago

Time to get out while you still can. A lot of the current value is tied up in stuff that will implode like in 2006. The Fed has created another asset bubble. We are sitting on a powderkeg. But where to invest instead?

hnarn 8y ago
> But where to invest instead? There's literally nowhere you won't lose money when investing in a recession, the point is to find the place where you'll lose the least amount of money -- a.k.a. the place where you are most certain the price has bottomed out -- and go for it. Then wait 5-10 years.
- EGreg 8y ago
  What about a basket of really promising startups or VCs?
  - rhexs 8y ago
    I presume this is a joke, but, if not, good luck. If you can pick the next Google reliably, you're presumably already worth tens of millions.
    - EGreg 8y ago
      How about a vanguard index of stoks
      - Latteland 8y ago
        You need a mixture of assets. If you don't need your investments to live on (cause you've got a job and an affordable place to live), then follow the standard policy of different categories of stocks, plus other areas. In 2007-2009 I noticed that I lost as much in my retirement accounts as I put into them in those years, Ie the value at the end of the year after putting 20k was about the same as at the start. That was something that really reminded me that it was great and lucky to have a good job as a software engineer.

holdenc 8y ago

It would be nice to see an analysis of the cost to build over time. Obviously, if 5% YoY increase is the new method of valuation accepted by all (per the article) there must come a time when builders create new units and compete on price.

isostatic 8y ago
Not when the majority of the price is in the value of land.

ransom1538 8y ago

No. The author here is cherry picking a timeframe [2012-2018]. Nice cherry pick. Unless you were smart enough to buy in 2012 that is gone: forever. Home prices have barley hit their 2008 prices. These are prices ten years ago. If a stock hit its price from ten years ago I wouldn't consider it a "boom". If you are a zillow user, look around at normal cities [Not manhattan,SF, or LA] linked below. If you have a minute, look at "Price / Tax History", and see what they sold at 2006/7/8. I see this pattern all over the US. I could add 20 more if you need. To me we are almost back to normal. Sure this is anecdotal but, averaging all US home prices with a cherry pick is just as silly. https://www.zillow.com/homedetails/5435-White-Heron-Pl-Oviedo-FL-32765/58182051_zpid/?fullpage=true https://www.zillow.com/homedetails/5435-White-Heron-Pl-Ovied... https://www.zillow.com/homedetails/6241-Gobernadores-Ln-Carmichael-CA-95608/67821430_zpid/?fullpage=true https://www.zillow.com/homedetails/6241-Gobernadores-Ln-Carm... https://www.zillow.com/homedetails/6600-Sutter-Ave-Carmichael-CA-95608/64591452_zpid/?fullpage=true https://www.zillow.com/homedetails/6600-Sutter-Ave-Carmichae...

nicholas73 8y ago
Do you have a reason to consider 2008 as normal?
- ransom1538 8y ago
  normal: %3-%5 yoy increases, basically a little under the mortgage rate. 2008 wasn’t normal that isn’t what I meant.
  - humanrebar 8y ago
    If housing is overvalued, mean returns lower than inflation would be better, though admittedly not "normal".
  - TravelAndFood 8y ago
    Yeah, I took your comment to mean something like "2008 wasn't normal. But imagine a "normal" price in 2008, and how it would have risen normally over ten years. Then maybe it would reach the actual 2008 price, which is about what we have in 2018." Not sure if that's correct, but sounds plausible.

sjg007 8y ago

It's funny cause I just bought my house in 2016 and now prices are declining.. Can't win.

bsenftner 8y ago

Housing Booms is the United States longest running con. It makes no sense, and is so completely disconnected from reality it creates a separate one most American's participate: the housing lottery for retirement.

devonkim 8y ago

Case Shiller index is the highest on record at the moment https://fred.stlouisfed.org/series/csushpinsa https://fred.stlouisfed.org/series/csushpinsa

pbourke 8y ago
In a normally functioning housing market (with a reasonable amount of inflation), wouldn’t this be the norm?
- devonkim 8y ago
  The index is based upon median income and median home sale price, not upon house prices as an absolute value. It’s an indicator of affordability. I don’t know if indexes are comparable across different countries and what they would mean.

fouc 8y ago

A recession is coming in the next 2-3 years due to demographics (peak baby boomer retiree is happening right around now). I think part of the housing boom is caused by the retirees.

pessimizer 8y ago
How? Retirees aren't buying houses, they're selling them.
Latteland 8y ago
A recession is due for lots of reasons, like the boom has continued this long because we juiced the economy with a bunch of tax cuts for rich people and companies that are basically a sugar high. At least since we raised interest rates we'll be able to cut them to stimulate the economy. On top of that sugar high we are pushing it down with stupid tariffs on most of our major allies. And growth periods in our history don't usually run this far. I think our future growth in the us will be significantly retarded because of high student loan debt. That gets some attention here at hacker news, but I don't see 'regular people' talking about it much.