11 ms·

ECB sees rising risk that housing bubble will burst

94 points by harambae 5y ago

m0llusk 5y ago
Housing bubbles rarely burst as such. There may be some sudden falls, but most real estate price corrections work by a combination of long term price stagnation and inflation.
fhrow4484 5y ago
> pushing house price growth to over 7%, its fastest rate since 2005. It seems that, like inflation, the EU sees the same trends as the US but with the value roughly divided by 2. However, in the US, the west&east coasts (especially suburbs) and a few metros (Austin, Denver, ...) the numbers are probably 4x that, so I wonder if in EU there is a similar trend, with some hotspot cities.
- Hermel 5y ago
  Year-on-year inflation for producer prices currently stands at 14.2% in Germany. So it is actually already quite high. https://www.destatis.de/DE/Themen/Wirtschaft/Preise/Erzeugerpreisindex-gewerbliche-Produkte/_inhalt.html https://www.destatis.de/DE/Themen/Wirtschaft/Preise/Erzeuger...
- sime2009 5y ago
  The whole Netherlands is a hotspot. Something like a 20% increase in house prices in the last 12 months.
  - alexbiet 5y ago
    Most of the houses listed on the Dutch real estate market sell for +€60K-€100K OVER the asking price. It's insane! Most people (teachers, nurses, etc) are on €35K-45K or less gross annual salary. Cut out ~50% taxes/healthcare and living expenses and calculate how many people can afford a €500K two-bedroom apartment from '72 near Amsterdam. Also, be prepared to drop another €20K on middlemen, notaries and tax to finalize the home purchase.
    - phicoh 5y ago
      The suprising thing is not that houses are expensive in Amsterdam (though 500K buys quite a bit of house just outside of Amsterdam), but that houses are unaffordable for average people throughout The Netherlands. It seems obvious to blame local governments all over The Netherlands who fail to make enough space available for building new houses.
    - thatfrenchguy 5y ago
      I mean, to be fair, paying 20% over asking in the San Francisco Bay Area has been just a normal fact of life in the last 10 years.
- hogFeast 5y ago
  It varies the same as in the US. In the US, housing in Detroit is very cheap but few people want to live there. In Europe, housing in Bratislava is very cheap but few people want to live there. The issue with housing is that rates are very low but there are parts of Europe, just like in the US, that have been performing well economically so low rates just pour fuel on the flames (without really helping the parts that aren't doing well). This also applies to some countries, like Denmark, that have pegged their currency to the EUR (I have no idea how the Demark peg is sustainable, it makes no sense, they had strong growth, unemployment below the natural rate/serious supply issues pre-Covid, and negative interest rates...this is not a good idea, because their mortgage market is heavily securitized the impact of this likely won't come out for years i.e. when the people who have invested in the covered bond market come to pay out to retirees, and those people find out they don't have enough to retire ever).
  - ptsneves 5y ago
    Between Detroit and Bratislava there is not doubt about where I would live. Bratislava is a very beautiful city. Detroit from what I heard has vast swaths of urban area completely abandoned or squatted. I would be surprised if Bratislava also does not have a buble as most central eastern Europe is undergoing strong growth.
    - hogFeast 5y ago
      Most of Eastern Europe is depopulating. Bratislava is nice but Munich or Paris is nicer because you can earn more money there.
  - sofixa 5y ago
    > This also applies to some countries, like Denmark, that have pegged their currency to the EUR (I have no idea how the Demark peg is sustainable, it makes no sense Do they have a choice? I was under the impression that all EU members agree to join the eurozone (without a time limit, so they can just stall forever, like Denmark seems to be doing), and peg their currencies to the euro pending them joining the eurozone.
mikkelam 5y ago
Good. Housing prices are insane at the moment. Housing speculation is making it unreasonable for many people to go and buy a home. It is seriously uncanny that housing has turned into speculation rather than a place to live
- snarf21 5y ago
  While true, it is the only hope that someone without money has to beat the market. Low interest rates and tax deductions and inflation mean you are paying back loans with positive leverage you can't get elsewhere.
- cactus2093 5y ago
  Turned into? This has been the expectation in the US going back at least 60 years, that you buy a house as an investment. On the one hand it is fundamentally incompatible with making housing affordable and having "housing as a human right". But still, hundreds of millions of people planning their entire lives around this existing model will have a really painful time if there is some kind of sudden shift in this social contract.
  - btilly 5y ago
    Well, it is only in the last couple of years that random people started calling me to ask if I want to sell my house for cash. So the trend has definitely accelerated. That said a driver for housing has been that over time we have had more people with bigger houses. So it has long been a demographic concern that as the Baby Boom retires, and goes to downgrade, we could wind up with a glut on the market. On top of that telecommute has opened up a significant move away from expensive urban areas like San Francisco. Both together mean that some housing markets have nothing to keep them from a severe fall. And if there is a crash, speculators trying to cover their shirts are likely to need to sell housing elsewhere, and the result could be a cascading problem.
  - bluGill 5y ago
    60 years ago housing was an investment in a very different form than it is today. 60 years ago was before Reagan and Trump tax reforms - both of which changed the rules in major ways. (every year the tax rules change in minor ways) 60 years ago also had much higher interest rates than today. Those two are very significant. Back then deducting your interest from your taxes was very important. The middle class could hardly afford to live in a tiny apartment, but the interest tax deduction meant they could afford to live in a good sized house. Back then you bought a house with the understanding that in 30 years it would be paid for - right about the time you were ready to retire, and then you lived rent free for the rest of your life (nobody considered nursing home expenses). Today housing as an investment to most people mean do a cash out refinance every few years so they can live beyond their means, then sell to some bigger sucker when they are done. If you think of housing as the first type of investment it can still be good in some cases. You need less money when you are retired and can live a long life in the place where you made your memories. Of course when talking about investing in housing it must be repeated "location location location". For some of you your location (and in particular change of location over time!) means buying a a bad investment. For others your location means buying is great. You have to figure this out for yourself.
kristov 5y ago
The question is: what investment options are there for a savings-rich population in an environment of high inflation? Get ripped off gambling in the rigged casino that is the stock market? Buy bitcoin? It's no surprise housing is going crazy. Does anyone expect there to be a new, stable investment opportunity come into existence in the next 10 years? I wish it were different.
- alliao 5y ago
  that is the end game for fast information highway huh, anything of remote value can have it's price carried forward instantly, and junk everywhere resulting in glut of cash ready to pounce on the next valuable thing. the best one can do is hold on to something keeps value I guess, by trading, hedging, real estate, and not sure if it's hip, gold?
  - reducesuffering 5y ago
    More like the current game for negative real interest rates. Suddenly anything that holds equivalent value 10 years out is worth much more than current $ which will depreciate by then.
- tpxl 5y ago
  The same it's been for the past 50 years, buy an ETF and be done with it.
  - criddell 5y ago
    Which ones?
    - reducesuffering 5y ago
      US total market ($VTI) and International total market ($VXUS). You could slightly bet on value ($VTV) for having better current profits (P/E 20 means effectively 5% real interest w/o growth) and typically doing better in rising rate environments (many banks in the index which have better profits on larger interest rate spreads).
psadri 5y ago
The risk of a housing bubble bursting should be a function of the number of recent owners who can’t afford a rate hike and are forced to sell in a hurry. Is this metric tracked somewhere?
- frankbreetz 5y ago
  aren't recent owners locked into a monthly payment for the next 15/30 years? People don't really get ARMs anymore. A rate hike would only affect prospective buyers.
  - xxpor 5y ago
    That's only true in the US. In nearly every other country you have ARMs or worse. In Canada, my understanding is the typical mortgage is done on a 30 year amortization, but the loan is due in 5 years with a balloon payment. You have to reapply for a new loan for the next 5. If you're denied, you're screwed.
    - sofixa 5y ago
      In most EU countries, including those discussed in the article, mortgage rates are fixed.
      - xxpor 5y ago
        I think there's some confusion about the meaning of fixed. In Germany, rates are fixed for a period of time for a lot of mortgages. That would be considered an adjustable rate mortgage in the US. Fixed rate in the US means it's fixed at loan origination for the entire life of the loan. https://www.fitchratings.com/research/structured-finance/covered-bonds/long-fixed-rate-periods-mitigate-german-mortgage-rate-rise-14-06-2021 https://www.fitchratings.com/research/structured-finance/cov... Edit, just found this: https://www.iamexpat.de/housing/german-mortgages/types-mortgages-germany https://www.iamexpat.de/housing/german-mortgages/types-mortg... Annuitätendarlehen is indeed the same as a US fixed rate.
- skrbjc 5y ago
slownews45 5y ago
The issue is we have an absolute flood of money landing at least in the US. The build back better plan is all front loaded spending, back loaded taxes. Where does all this money go? I'm serious. If you put it in the bank it makes 0.01%. No question there is a bubble, but what's going to pop it, and where do people put their money - and no - I think crypto is pretty garbage so lets leave that out. P/E ratios on equities are currently crazy as well.
- literallyaduck 5y ago
  You trade it before other people realize the ponzi scheme is nearing its end. The question is which countries currency is not entangled with the US.
Animats 5y ago
Well, it has to at some point. The hard question is when. Market timing is really tough. Here's the long term house price to median income ratio chart for the US and UK.[1] We're basically repeating 2008. [1] https://www.longtermtrends.net/home-price-median-annual-income-ratio/ https://www.longtermtrends.net/home-price-median-annual-inco...
- faebi 5y ago
  I really love this website. Thanks.
- aeternum 5y ago
  Vacancies are still nowhere close to 2008 levels though. May indicate that there's more legitimate demand and less speculation going on. https://fred.stlouisfed.org/series/ESALEUSQ176N https://fred.stlouisfed.org/series/ESALEUSQ176N New housing starts are also interesting. Continuing to trend upward but still well under where we've been in the past. https://fred.stlouisfed.org/series/HOUST https://fred.stlouisfed.org/series/HOUST
- bugzz 5y ago
  Even if we're at the same home price / income ratio as 2008, a big difference is mortgage rates. In 2008 a 30 year was 5.5%-6.5%. Now it's 3%. So we aren't yet near 2008 levels of mortgage payment / income ratio
  - gfodor 5y ago
    Not to mention that servicing these debts is getting more easy with time than before, as the dollar inflates. Not good in general, but predicting a housing crash due to over-leveraging is a bad thesis: people can easily afford to pay their mortgages. And besides, we all know "repeating 2008" is not a thing: financial crises happen when the thing nobody predicts occurs. 2008 is still fresh in everyone's memory, so you can be sure that particular kind of cascading effect won't be the catalyst for the next crisis. (It may rhyme, though.)
nostrademons 5y ago
Curious what their reasoning is. The article mentions: "With families building up savings during pandemic and increasingly working from home, demand for property is on the rise..." "Construction cannot keep up with demand and the residential market is especially hot" "Despite the recovery in residential construction, labour shortages, global supply chain bottlenecks and input price increases are weighing on the construction sector’s ability to expand housing supply, which is putting upward pressure on house prices" All of those are indicative of a housing shortage, not a bubble. For the bubble to burst, a lot of underutilized housing would need to come onto the market at once, into an environment where demand is dropping. If supply is tightening and demand is expanding, that's a recipe for continued price increases, not drops. I suspect people are saying "bubble will burst" because it's going up faster than it has in recent memory, but there's nothing special about today's prices. If supply is low and demand is high tomorrow, there's a new price equilibrium that's higher than today.
- asow92 5y ago
  Totally agree with this notion, and also wonder if this article takes into account how much of a wildcard we're all in right now. Standard monetary scrutiny may not apply because we just lived through a global disaster and the world is changing before our eyes i.e. "new normal", "the great reset", etc.. My wife and I are working from home forever and they're just going to have to work with that.
- Macha 5y ago
  There certainly is underutilized housing - many cities will have examples of property being bought for investment and then maybe being an airbnb or totally unused. What there isn't yet is unsold housing.
  - nostrademons 5y ago
    There is, but I'm curious just how big it is compared to latent demand. On a random drive through a residential area, I'll see an occasional vacant lot or house with its lights perpetually off, but the vast majority of houses seem to be actively lived in. By contrast, I know lots of people that want houses but can't afford them. Either they're living with parents, or raising a family in a condo/apartment that's too small for them, or they've got roommates, or they're doubled/tripled up in a unit with extended family. If prices went down, they'd jump at a chance to buy, but they can't make it work right now. For a bubble to burst, there'd need to be more vacant units being held as investment properties than there are persons/households that are bunking with people they'd rather not be with. I'm unconvinced this is the case; it certainly seems counter to my experience.
jeffbee 5y ago
You can tell which vested interests have a stake in the outcome by the fact that they choose "risk" over a more neutral word like "probability" or "chance". To the 1% audience, lower housing prices are a "risk" just like fair wages are a "risk".
paxys 5y ago
The article is basically – home prices are rising fast therefore it must be a bubble therefore the bubble will burst. Is there anything actually supporting their assertion?
commandlinefan 5y ago
I'm hoping that my tax appraisal goes down next year...
jbverschoor 5y ago
It’s not just a housing bubble. It’s an everything bubble. Aka inflation
- anyfoo 5y ago
  Isn't the point of a "bubble" that it bursts, and prices crash? I'm not sure we're going to see sudden deflation anytime soon...
  - sfblah 5y ago
    The difference (until recently) here was that investment assets were going up but the cost of living, in general, wasn't. That's a big differentiator between a bubble and inflation. Recently, however, the government started printing money and giving it to the poor and middle class. That's producing inflation, since they tend to buy stuff instead of just "letting it ride."
esja 5y ago
Meanwhile the ECB is expanding the bubble by leaving interest rates too low for too long.
- oblio 5y ago
  They'd get shot of they'd increase the rates during a pandemic.
spamizbad 5y ago
I feel like there's so much pent-up demand that it's far more likely to "deflate" than burst. Unless we are talking about some sort of major recession in which case I feel like we'll have bigger problems than a sluggish housing market.
skrbjc 5y ago
I think another factor for continued demand is what some have called the "millennial baby boom". Millennials are aging and getting to the point where they are confronting having a child or not. Those that want kids likely also want a house, and those same people are probably also the most likely to want to work remotely. They are also likely the group that has been living in a city and are thinking to move out of the city closer to family, to a larger house, where they can raise the kids they want and have them go to a good public school. I think these may be some of the bigger factors that are pushing the continued demand in the housing market. Also the idea that interest rates are at a historic low in the US, many are thinking they should nab a house they can right now and lock in the rate. They are also afraid of inflation so waiting means higher priced houses and higher interest rates, which means they have to go to a "worse" neighborhood or area, or less of a house. So the pressure is to get something now. It's hard to see this demand going away for the next 5-10 years while millennials are having their babies. We will see.
- skrbjc 5y ago
  There are also those of us that feel a bit screwed by buying a "starter" home. While that starter home has appreciated, we can't afford a bigger home for our bigger family in the same area, which means we have to think of alternative areas, which means we push prices up in those areas. I think many are trying to jump into their forever home so they can enjoy it without being worried for the future when they need to upgrade and are priced out. This is at least the dynamic in the bay area.
- lotsofpulp 5y ago
  Births and birthrates are only decreasing year after year: https://www.cdc.gov/nchs/data/vsrr/vsrr012-508.pdf https://www.cdc.gov/nchs/data/vsrr/vsrr012-508.pdf Maybe birthrates among those with higher incomes are trending up? I could not find statistics on that quickly. Some more data: https://www.brookings.edu/blog/up-front/2021/05/24/will-births-in-the-us-rebound-probably-not/ https://www.brookings.edu/blog/up-front/2021/05/24/will-birt...
- deleted 5y ago
  [deleted]
woeirua 5y ago
I think most people in this thread should read this report [1]. It's quite eye opening to see how a small change in interest rates exerts strong downward pressure on housing prices because of how many buyers get priced out. Essentially, I think the ECB is saying that if interest rates go up, and they have nowhere else to go, then housing prices _have_ to come down, regardless of the other factors at play. People just get priced out. [1] https://www.nahb.org/-/media/NAHB/news-and-economics/docs/housing-economics-plus/special-studies/2021/special-study-nahb-priced-out-estimates-for-2021-february-2021.pdf https://www.nahb.org/-/media/NAHB/news-and-economics/docs/ho...
- 88913527 5y ago
  How do we know that institutional buyers won't step in and take advantage of the price dip, minimizing the overall decline? Imagine a quarter of falling prices, then the big money comes in to make purchases, easing the blow to prices. It's hard to know how much cash is sitting on the sidelines but it's certainly a possibility given the proportional increase in institutional purchases.
  - gfodor 5y ago
    Yep. Interest rates don't mean jack if there's a bottomless market of buyers who will not use debt and just want to put capital somewhere, anywhere, that will appreciate in a highly inflationary environment. It will be tragic that average people won't be buying homes, but the notion that consumer home purchases have the power to move market prices much seems like a weaker and weaker assumption.
    - woeirua 5y ago
      There are estimates that put the total annual RE transaction value in the US at > $1.5 trillion. Blackrock, Opendoor, Offerpad, etc. are small potatoes compared to the overall size of the market.
      - gfodor 5y ago
streamofdigits 5y ago
central banks are in a bind: * raise rates -> the whole house of cards collapses as 10+ years of easy money have created a monster. * keep rates at zero (actually negative) -> the monster keeps growing as people are basically forced to speculate how this hairball will unwind is anybody's guess. in a sense the pandemic was a reprieve cause basically all risks globally have been absorbed into government liabilities through the massive and unprecedented support to the private sector a return to biological "normalcy" may actually become an economic (or at least a market) abnormality...
- paxys 5y ago
  Something a lot of people don't realize is that we are still in the 2008 financial crisis. The stock market has gone up, and many people are happy, but the fundamentals of the economy are far from solid.
  - streamofdigits 5y ago
    its not just stocks. besides the real estate effect being discussed here you have like 500 different cryptocurrencies all shooting for the moon, streets laced with supercars, NFT crazyness, you name it all this amidst rising geopolitical tensions as the pax sino-americana and its supply chains are being dismantled it all feels quite unhinged and who knows what hidden liabilities have been created
- webinvest 5y ago
  The best way out is through growth. In this case, that means growing the housing supply, If more homes come on the market or more individuals build themselves homes, the housing problem solves itself. If the central banks raise rates slowly at a quarter basis point at a time, it might not cause a crash. That is their current plan and I think it will work. Obviously they can’t in good conscience go raise rates 2% all at once.
VirusNewbie 5y ago
I bought my house for 1.2M in late 2020 and now the latest comps put it north of 1.55M lol wtf.
- sfblah 5y ago
  I remember that feeling in 2007. Then, in 2009, my house was worth 600k.
  - VirusNewbie 5y ago
    yeah but presumably if you aren't over leveraged, who cares. I plan on staying put but if the housing market crashes I'll just buy the even bigger house above me on the hill with a view shrug.

94 points by harambae 5y ago

Housing bubbles rarely burst as such. There may be some sudden falls, but most real estate price corrections work by a combination of long term price stagnation and inflation.

fhrow4484 5y ago

> pushing house price growth to over 7%, its fastest rate since 2005. It seems that, like inflation, the EU sees the same trends as the US but with the value roughly divided by 2. However, in the US, the west&east coasts (especially suburbs) and a few metros (Austin, Denver, ...) the numbers are probably 4x that, so I wonder if in EU there is a similar trend, with some hotspot cities.

Hermel 5y ago
Year-on-year inflation for producer prices currently stands at 14.2% in Germany. So it is actually already quite high. https://www.destatis.de/DE/Themen/Wirtschaft/Preise/Erzeugerpreisindex-gewerbliche-Produkte/_inhalt.html https://www.destatis.de/DE/Themen/Wirtschaft/Preise/Erzeuger...
sime2009 5y ago
The whole Netherlands is a hotspot. Something like a 20% increase in house prices in the last 12 months.
- alexbiet 5y ago
  Most of the houses listed on the Dutch real estate market sell for +€60K-€100K OVER the asking price. It's insane! Most people (teachers, nurses, etc) are on €35K-45K or less gross annual salary. Cut out ~50% taxes/healthcare and living expenses and calculate how many people can afford a €500K two-bedroom apartment from '72 near Amsterdam. Also, be prepared to drop another €20K on middlemen, notaries and tax to finalize the home purchase.
  - phicoh 5y ago
    The suprising thing is not that houses are expensive in Amsterdam (though 500K buys quite a bit of house just outside of Amsterdam), but that houses are unaffordable for average people throughout The Netherlands. It seems obvious to blame local governments all over The Netherlands who fail to make enough space available for building new houses.
  - thatfrenchguy 5y ago
    I mean, to be fair, paying 20% over asking in the San Francisco Bay Area has been just a normal fact of life in the last 10 years.
hogFeast 5y ago
It varies the same as in the US. In the US, housing in Detroit is very cheap but few people want to live there. In Europe, housing in Bratislava is very cheap but few people want to live there. The issue with housing is that rates are very low but there are parts of Europe, just like in the US, that have been performing well economically so low rates just pour fuel on the flames (without really helping the parts that aren't doing well). This also applies to some countries, like Denmark, that have pegged their currency to the EUR (I have no idea how the Demark peg is sustainable, it makes no sense, they had strong growth, unemployment below the natural rate/serious supply issues pre-Covid, and negative interest rates...this is not a good idea, because their mortgage market is heavily securitized the impact of this likely won't come out for years i.e. when the people who have invested in the covered bond market come to pay out to retirees, and those people find out they don't have enough to retire ever).
- ptsneves 5y ago
  Between Detroit and Bratislava there is not doubt about where I would live. Bratislava is a very beautiful city. Detroit from what I heard has vast swaths of urban area completely abandoned or squatted. I would be surprised if Bratislava also does not have a buble as most central eastern Europe is undergoing strong growth.
  - hogFeast 5y ago
    Most of Eastern Europe is depopulating. Bratislava is nice but Munich or Paris is nicer because you can earn more money there.
- sofixa 5y ago
  > This also applies to some countries, like Denmark, that have pegged their currency to the EUR (I have no idea how the Demark peg is sustainable, it makes no sense Do they have a choice? I was under the impression that all EU members agree to join the eurozone (without a time limit, so they can just stall forever, like Denmark seems to be doing), and peg their currencies to the euro pending them joining the eurozone.

mikkelam 5y ago

Good. Housing prices are insane at the moment. Housing speculation is making it unreasonable for many people to go and buy a home. It is seriously uncanny that housing has turned into speculation rather than a place to live

snarf21 5y ago
While true, it is the only hope that someone without money has to beat the market. Low interest rates and tax deductions and inflation mean you are paying back loans with positive leverage you can't get elsewhere.
cactus2093 5y ago
Turned into? This has been the expectation in the US going back at least 60 years, that you buy a house as an investment. On the one hand it is fundamentally incompatible with making housing affordable and having "housing as a human right". But still, hundreds of millions of people planning their entire lives around this existing model will have a really painful time if there is some kind of sudden shift in this social contract.
- btilly 5y ago
  Well, it is only in the last couple of years that random people started calling me to ask if I want to sell my house for cash. So the trend has definitely accelerated. That said a driver for housing has been that over time we have had more people with bigger houses. So it has long been a demographic concern that as the Baby Boom retires, and goes to downgrade, we could wind up with a glut on the market. On top of that telecommute has opened up a significant move away from expensive urban areas like San Francisco. Both together mean that some housing markets have nothing to keep them from a severe fall. And if there is a crash, speculators trying to cover their shirts are likely to need to sell housing elsewhere, and the result could be a cascading problem.
- bluGill 5y ago
  60 years ago housing was an investment in a very different form than it is today. 60 years ago was before Reagan and Trump tax reforms - both of which changed the rules in major ways. (every year the tax rules change in minor ways) 60 years ago also had much higher interest rates than today. Those two are very significant. Back then deducting your interest from your taxes was very important. The middle class could hardly afford to live in a tiny apartment, but the interest tax deduction meant they could afford to live in a good sized house. Back then you bought a house with the understanding that in 30 years it would be paid for - right about the time you were ready to retire, and then you lived rent free for the rest of your life (nobody considered nursing home expenses). Today housing as an investment to most people mean do a cash out refinance every few years so they can live beyond their means, then sell to some bigger sucker when they are done. If you think of housing as the first type of investment it can still be good in some cases. You need less money when you are retired and can live a long life in the place where you made your memories. Of course when talking about investing in housing it must be repeated "location location location". For some of you your location (and in particular change of location over time!) means buying a a bad investment. For others your location means buying is great. You have to figure this out for yourself.

kristov 5y ago

The question is: what investment options are there for a savings-rich population in an environment of high inflation? Get ripped off gambling in the rigged casino that is the stock market? Buy bitcoin? It's no surprise housing is going crazy. Does anyone expect there to be a new, stable investment opportunity come into existence in the next 10 years? I wish it were different.

alliao 5y ago
that is the end game for fast information highway huh, anything of remote value can have it's price carried forward instantly, and junk everywhere resulting in glut of cash ready to pounce on the next valuable thing. the best one can do is hold on to something keeps value I guess, by trading, hedging, real estate, and not sure if it's hip, gold?
- reducesuffering 5y ago
  More like the current game for negative real interest rates. Suddenly anything that holds equivalent value 10 years out is worth much more than current $ which will depreciate by then.
tpxl 5y ago
The same it's been for the past 50 years, buy an ETF and be done with it.
- criddell 5y ago
  Which ones?
  - reducesuffering 5y ago
    US total market ($VTI) and International total market ($VXUS). You could slightly bet on value ($VTV) for having better current profits (P/E 20 means effectively 5% real interest w/o growth) and typically doing better in rising rate environments (many banks in the index which have better profits on larger interest rate spreads).

psadri 5y ago

The risk of a housing bubble bursting should be a function of the number of recent owners who can’t afford a rate hike and are forced to sell in a hurry. Is this metric tracked somewhere?

frankbreetz 5y ago
aren't recent owners locked into a monthly payment for the next 15/30 years? People don't really get ARMs anymore. A rate hike would only affect prospective buyers.
- xxpor 5y ago
  That's only true in the US. In nearly every other country you have ARMs or worse. In Canada, my understanding is the typical mortgage is done on a 30 year amortization, but the loan is due in 5 years with a balloon payment. You have to reapply for a new loan for the next 5. If you're denied, you're screwed.
  - sofixa 5y ago
    In most EU countries, including those discussed in the article, mortgage rates are fixed.
    - xxpor 5y ago
      I think there's some confusion about the meaning of fixed. In Germany, rates are fixed for a period of time for a lot of mortgages. That would be considered an adjustable rate mortgage in the US. Fixed rate in the US means it's fixed at loan origination for the entire life of the loan. https://www.fitchratings.com/research/structured-finance/covered-bonds/long-fixed-rate-periods-mitigate-german-mortgage-rate-rise-14-06-2021 https://www.fitchratings.com/research/structured-finance/cov... Edit, just found this: https://www.iamexpat.de/housing/german-mortgages/types-mortgages-germany https://www.iamexpat.de/housing/german-mortgages/types-mortg... Annuitätendarlehen is indeed the same as a US fixed rate.
skrbjc 5y ago

slownews45 5y ago

The issue is we have an absolute flood of money landing at least in the US. The build back better plan is all front loaded spending, back loaded taxes. Where does all this money go? I'm serious. If you put it in the bank it makes 0.01%. No question there is a bubble, but what's going to pop it, and where do people put their money - and no - I think crypto is pretty garbage so lets leave that out. P/E ratios on equities are currently crazy as well.

literallyaduck 5y ago
You trade it before other people realize the ponzi scheme is nearing its end. The question is which countries currency is not entangled with the US.

Animats 5y ago

Well, it has to at some point. The hard question is when. Market timing is really tough. Here's the long term house price to median income ratio chart for the US and UK.[1] We're basically repeating 2008. [1] https://www.longtermtrends.net/home-price-median-annual-income-ratio/ https://www.longtermtrends.net/home-price-median-annual-inco...

faebi 5y ago
I really love this website. Thanks.
aeternum 5y ago
Vacancies are still nowhere close to 2008 levels though. May indicate that there's more legitimate demand and less speculation going on. https://fred.stlouisfed.org/series/ESALEUSQ176N https://fred.stlouisfed.org/series/ESALEUSQ176N New housing starts are also interesting. Continuing to trend upward but still well under where we've been in the past. https://fred.stlouisfed.org/series/HOUST https://fred.stlouisfed.org/series/HOUST
bugzz 5y ago
Even if we're at the same home price / income ratio as 2008, a big difference is mortgage rates. In 2008 a 30 year was 5.5%-6.5%. Now it's 3%. So we aren't yet near 2008 levels of mortgage payment / income ratio
- gfodor 5y ago
  Not to mention that servicing these debts is getting more easy with time than before, as the dollar inflates. Not good in general, but predicting a housing crash due to over-leveraging is a bad thesis: people can easily afford to pay their mortgages. And besides, we all know "repeating 2008" is not a thing: financial crises happen when the thing nobody predicts occurs. 2008 is still fresh in everyone's memory, so you can be sure that particular kind of cascading effect won't be the catalyst for the next crisis. (It may rhyme, though.)

nostrademons 5y ago

Curious what their reasoning is. The article mentions: "With families building up savings during pandemic and increasingly working from home, demand for property is on the rise..." "Construction cannot keep up with demand and the residential market is especially hot" "Despite the recovery in residential construction, labour shortages, global supply chain bottlenecks and input price increases are weighing on the construction sector’s ability to expand housing supply, which is putting upward pressure on house prices" All of those are indicative of a housing shortage, not a bubble. For the bubble to burst, a lot of underutilized housing would need to come onto the market at once, into an environment where demand is dropping. If supply is tightening and demand is expanding, that's a recipe for continued price increases, not drops. I suspect people are saying "bubble will burst" because it's going up faster than it has in recent memory, but there's nothing special about today's prices. If supply is low and demand is high tomorrow, there's a new price equilibrium that's higher than today.

asow92 5y ago
Totally agree with this notion, and also wonder if this article takes into account how much of a wildcard we're all in right now. Standard monetary scrutiny may not apply because we just lived through a global disaster and the world is changing before our eyes i.e. "new normal", "the great reset", etc.. My wife and I are working from home forever and they're just going to have to work with that.
Macha 5y ago
There certainly is underutilized housing - many cities will have examples of property being bought for investment and then maybe being an airbnb or totally unused. What there isn't yet is unsold housing.
- nostrademons 5y ago
  There is, but I'm curious just how big it is compared to latent demand. On a random drive through a residential area, I'll see an occasional vacant lot or house with its lights perpetually off, but the vast majority of houses seem to be actively lived in. By contrast, I know lots of people that want houses but can't afford them. Either they're living with parents, or raising a family in a condo/apartment that's too small for them, or they've got roommates, or they're doubled/tripled up in a unit with extended family. If prices went down, they'd jump at a chance to buy, but they can't make it work right now. For a bubble to burst, there'd need to be more vacant units being held as investment properties than there are persons/households that are bunking with people they'd rather not be with. I'm unconvinced this is the case; it certainly seems counter to my experience.

jeffbee 5y ago

You can tell which vested interests have a stake in the outcome by the fact that they choose "risk" over a more neutral word like "probability" or "chance". To the 1% audience, lower housing prices are a "risk" just like fair wages are a "risk".

paxys 5y ago

The article is basically – home prices are rising fast therefore it must be a bubble therefore the bubble will burst. Is there anything actually supporting their assertion?

commandlinefan 5y ago

I'm hoping that my tax appraisal goes down next year...

jbverschoor 5y ago

It’s not just a housing bubble. It’s an everything bubble. Aka inflation

anyfoo 5y ago
Isn't the point of a "bubble" that it bursts, and prices crash? I'm not sure we're going to see sudden deflation anytime soon...
- sfblah 5y ago
  The difference (until recently) here was that investment assets were going up but the cost of living, in general, wasn't. That's a big differentiator between a bubble and inflation. Recently, however, the government started printing money and giving it to the poor and middle class. That's producing inflation, since they tend to buy stuff instead of just "letting it ride."

esja 5y ago

Meanwhile the ECB is expanding the bubble by leaving interest rates too low for too long.

oblio 5y ago
They'd get shot of they'd increase the rates during a pandemic.

spamizbad 5y ago

I feel like there's so much pent-up demand that it's far more likely to "deflate" than burst. Unless we are talking about some sort of major recession in which case I feel like we'll have bigger problems than a sluggish housing market.

skrbjc 5y ago

I think another factor for continued demand is what some have called the "millennial baby boom". Millennials are aging and getting to the point where they are confronting having a child or not. Those that want kids likely also want a house, and those same people are probably also the most likely to want to work remotely. They are also likely the group that has been living in a city and are thinking to move out of the city closer to family, to a larger house, where they can raise the kids they want and have them go to a good public school. I think these may be some of the bigger factors that are pushing the continued demand in the housing market. Also the idea that interest rates are at a historic low in the US, many are thinking they should nab a house they can right now and lock in the rate. They are also afraid of inflation so waiting means higher priced houses and higher interest rates, which means they have to go to a "worse" neighborhood or area, or less of a house. So the pressure is to get something now. It's hard to see this demand going away for the next 5-10 years while millennials are having their babies. We will see.

skrbjc 5y ago
There are also those of us that feel a bit screwed by buying a "starter" home. While that starter home has appreciated, we can't afford a bigger home for our bigger family in the same area, which means we have to think of alternative areas, which means we push prices up in those areas. I think many are trying to jump into their forever home so they can enjoy it without being worried for the future when they need to upgrade and are priced out. This is at least the dynamic in the bay area.
lotsofpulp 5y ago
Births and birthrates are only decreasing year after year: https://www.cdc.gov/nchs/data/vsrr/vsrr012-508.pdf https://www.cdc.gov/nchs/data/vsrr/vsrr012-508.pdf Maybe birthrates among those with higher incomes are trending up? I could not find statistics on that quickly. Some more data: https://www.brookings.edu/blog/up-front/2021/05/24/will-births-in-the-us-rebound-probably-not/ https://www.brookings.edu/blog/up-front/2021/05/24/will-birt...
deleted 5y ago
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woeirua 5y ago

I think most people in this thread should read this report [1]. It's quite eye opening to see how a small change in interest rates exerts strong downward pressure on housing prices because of how many buyers get priced out. Essentially, I think the ECB is saying that if interest rates go up, and they have nowhere else to go, then housing prices _have_ to come down, regardless of the other factors at play. People just get priced out. [1] https://www.nahb.org/-/media/NAHB/news-and-economics/docs/housing-economics-plus/special-studies/2021/special-study-nahb-priced-out-estimates-for-2021-february-2021.pdf https://www.nahb.org/-/media/NAHB/news-and-economics/docs/ho...

88913527 5y ago
How do we know that institutional buyers won't step in and take advantage of the price dip, minimizing the overall decline? Imagine a quarter of falling prices, then the big money comes in to make purchases, easing the blow to prices. It's hard to know how much cash is sitting on the sidelines but it's certainly a possibility given the proportional increase in institutional purchases.
- gfodor 5y ago
  Yep. Interest rates don't mean jack if there's a bottomless market of buyers who will not use debt and just want to put capital somewhere, anywhere, that will appreciate in a highly inflationary environment. It will be tragic that average people won't be buying homes, but the notion that consumer home purchases have the power to move market prices much seems like a weaker and weaker assumption.
  - woeirua 5y ago
    There are estimates that put the total annual RE transaction value in the US at > $1.5 trillion. Blackrock, Opendoor, Offerpad, etc. are small potatoes compared to the overall size of the market.
    - gfodor 5y ago

streamofdigits 5y ago

central banks are in a bind: * raise rates -> the whole house of cards collapses as 10+ years of easy money have created a monster. * keep rates at zero (actually negative) -> the monster keeps growing as people are basically forced to speculate how this hairball will unwind is anybody's guess. in a sense the pandemic was a reprieve cause basically all risks globally have been absorbed into government liabilities through the massive and unprecedented support to the private sector a return to biological "normalcy" may actually become an economic (or at least a market) abnormality...

paxys 5y ago
Something a lot of people don't realize is that we are still in the 2008 financial crisis. The stock market has gone up, and many people are happy, but the fundamentals of the economy are far from solid.
- streamofdigits 5y ago
  its not just stocks. besides the real estate effect being discussed here you have like 500 different cryptocurrencies all shooting for the moon, streets laced with supercars, NFT crazyness, you name it all this amidst rising geopolitical tensions as the pax sino-americana and its supply chains are being dismantled it all feels quite unhinged and who knows what hidden liabilities have been created
webinvest 5y ago
The best way out is through growth. In this case, that means growing the housing supply, If more homes come on the market or more individuals build themselves homes, the housing problem solves itself. If the central banks raise rates slowly at a quarter basis point at a time, it might not cause a crash. That is their current plan and I think it will work. Obviously they can’t in good conscience go raise rates 2% all at once.

VirusNewbie 5y ago

I bought my house for 1.2M in late 2020 and now the latest comps put it north of 1.55M lol wtf.

sfblah 5y ago
I remember that feeling in 2007. Then, in 2009, my house was worth 600k.
- VirusNewbie 5y ago
  yeah but presumably if you aren't over leveraged, who cares. I plan on staying put but if the housing market crashes I'll just buy the even bigger house above me on the hill with a view shrug.