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Curious what their reasoning is. The article mentions: "With families building up savings during pandemic and increasingly working from home, demand for prope

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.
- bennysomething 5y ago
  Doubt many investors keep their properties intentionally unused.
throwawaygh 5y ago
Those quotes describe a taut rubber band that could easily be released in the next 1-2 years. > With families building up savings during pandemic and increasingly working from home, demand for property is on the rise... Return to office, taking deferred vacations, etc. winds down the savings. > labour shortages, global supply chain bottlenecks won't last forever. So there's downside demand-side risk and upside supply-side risks, with identical underlying causal triggering conditions (end of pandemic). Oh, and how long can central banks hold off on rate increases? The risk of a violent crash has less to do with the probability of a rapid post-pandemic renormalization and more to do with the tight causal links between the risks of upside supply and downside demand. Less like "crash will definitely happen" and more like "X_1, ..., X_n all have unknown but likely highly correlated probabilities, so if one happens they all happen and if you get X_1, ..., X_n all at once there'll definitely be a crash" I think.
- nostrademons 5y ago
  The last 20 years has taught me to be suspicious of renormalization arguments. History marches on; people have memories, but history itself seems to be a big Markov process where the future depends only on the present and the forces that drive it, not the past. I could believe an argument based on causal links of supply & demand, but I'm skeptical that they'll operate in the direction you suggest. To my eye: remote work was a spring that's been ready to burst since about 2014 but needed the pandemic to catalyze it; we're not going back to offices; home offices are going to become very desirable; savings (in the form of financial assets, at least) are increasing because of inflation; and supply chain bottlenecks are not normalizing anytime soon.
  - throwawaygh 5y ago
    > The last 20 years has taught me to be suspicious of renormalization arguments. 2021-2008 = 13 < 20.
    - nostrademons 5y ago
      I'm actually thinking of late-90s up through today: There were a lot geopolitical papers written then about the unipolar world and how we'd reached the end of history and liberal democracy had won. To the extent that people imagined threats to U.S. dominance, they usually envisioned state actors like Russia or China. Few people predicted the rise of international terrorism, widespread state failures, mass migrations, and internal destabilization of states. There were a fair number of commentators who said that the Internet was a fad and we'd go back to calling up businesses when we got tired of webpages. The dot-com boom was a bona-fide bubble - it burst, severely - and yet it also wasn't. I predicted the Amazon would go out of business in 2001 when their stock was down 90% in a year; it now owns retail, and is worth 50x that. People wondered how the hell a website for throwing virtual sheep at one another was worth $15B in 2007. It's now worth $942B, and blamed for taking down governments. We just had a page at the top of HN about someone's 2011 prediction that Bitcoin would fail. It did, for all the reasons they listed, and yet is still worth 20,000x what it was going for then. It's also had some 60-70% declines in that process. The general lesson I take from these is that life is a whole lot more random and absurd than a lot of people think it is. A lot of people who lose everything in bubbles are right about the direction of the trend (oftentimes on a subconscious level), but wrong about magnitude and timing. I see a lot of people asking whether today's housing situation is like 2008, and to my eye the fundamental forces are nothing alike. But 2005-2008 might have been the bubble before the trend, which sets up the causal forces leading to a genuine housing shortage now.
dageshi 5y ago
What's not being spoken about in the article is interest rate increases. They're as low as they can go, the only way is up at some point. If rates increase, servicing current debts maybe impossible forcing people to sell and financing new purchases at current prices is out of reach for new buyers. Given current inflation expectations (and reality) the ECB will probably come under a lot of pressure to start raising rates. The French are already trying to play down inflation to try and avoid the above scenario I'm guessing https://www.bloomberg.com/news/articles/2021-11-18/don-t-panic-about-inflation-france-s-le-maire-tells-europe https://www.bloomberg.com/news/articles/2021-11-18/don-t-pan...
- gfodor 5y ago
  "The only way is up" is a bad argument for trying to predict interest rates. There are other ways. First, no change. Second, negative. People have been making the "they have to go up eventually!" argument so long now that I'm starting to think that no, they don't have to.
- throwawaygh 5y ago
  Although true in Europe, the US is less susceptible to this because of our 30 year fixed rate mortgages. In fact, here, it's the opposite: interest rate increases -> decreased housing prices -> decreased tax assessments -> lower total cost of ownership for already-issued loans -> less risk of default for current home owners. In a vacuum.
  - xxpor 5y ago
    I think the risk in the US is if house valuations fall too much and you're severely underwater, people will just walk away from mortgages. I believe we saw this in 08. Not as direct a risk in non-fixed mortgage countries, but still an issue.
  - jacquesm 5y ago
    Plenty of fixed rate mortgages in Europe. 30 year fixed is about 2% here at the moment.
throwvirtever 5y ago
> For the bubble to burst, a lot of underutilized housing would need to come onto the market at once... It doesn't have to be a lot. It might only require a little underutilized housing to cause a price drop, depending on how inelastic the market is. If that is indeed the case, then the high-price situation would be fairly fragile, and worthy of being called a "bubble", even if it reflects a current shortage.
jimbob45 5y ago
All I hear from these threads is "more supply more supply increase the supply". What is the target here? Should everyone have a vacation home in every US city? Should everyone be allowed unlimited houses to rent out in addition to the one they own? We already have enough housing to house everyone in the US (including the homeless) with ease. Where are we going to draw the line in the name of investment and speculation?
- mbg721 5y ago
  I used to think the issue was "Yes, there are houses you can buy, but not enough in the places where the jobs are.". Now I'm less convinced, just because near me, I hear about bidding wars in neighborhoods that have no good reason to be trendy.
- sofixa 5y ago
  The article is about the ECB, so the EU, not US. In any case, housing not where people want it isn't of much use. There are ongoing shortages of housing in many of the big cities in France, Germany, Netherlands. Semi-abandoned houses in the middle of nowhere don't help with that.
lkrubner 5y ago
Strongly agree, and furthermore the phrase "a bubble" only works as a metaphor if we associate debt with empty air, and therefore the metaphor only works if we are talking about debt. But the article says that people's savings increased massively during the pandemic, which would be an ahistorical prelude to a bubble.
pxue 5y ago
But the problem is how much of the demand is artificially proped up by the extremely low borrowing rate? What central banks and feds need to think about is, if they raise rates to combat high inflation, will the higher rates induce a coma in the borrowing market, thus overcorrecting the market into a high supply/low demand situation. While your argument is logically sound, it's not the whole picture
- nostrademons 5y ago
  Could be. Or the higher rates might dry up liquidity but not affect prices, as they did in the 81-82 recession. (In other words, nobody buys houses because they can't afford to, but nobody sells houses either because they don't want to take a loss and can just live in them.) Or the market correction makes central banks flinch and they reverse their interest rate hikes, as they did in 2019. Or they hike rates, but not enough to offset inflation, and so real interest rates remain negative and prices keep going up. The whole picture is complex. Anyone who predicts it correctly stands to make a lot of money.
  - satellite2 5y ago
    > they hike rates, but not enough to offset inflation, and so real interest rates remain negative and prices keep going up. So stagflation, with the prices going up but down in real terms. That seems to be the best case scenario, the way to reduce overinflated asset prices without causing a panic. And I'm pretty sure central bankers are currently dreaming of pulling this off, but it seems the market is much more aware of inflation than it was in the 70s, so I'm not sure it's more than a dream.

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.
bennysomething 5y ago
Doubt many investors keep their properties intentionally unused.

throwawaygh 5y ago

Those quotes describe a taut rubber band that could easily be released in the next 1-2 years. > With families building up savings during pandemic and increasingly working from home, demand for property is on the rise... Return to office, taking deferred vacations, etc. winds down the savings. > labour shortages, global supply chain bottlenecks won't last forever. So there's downside demand-side risk and upside supply-side risks, with identical underlying causal triggering conditions (end of pandemic). Oh, and how long can central banks hold off on rate increases? The risk of a violent crash has less to do with the probability of a rapid post-pandemic renormalization and more to do with the tight causal links between the risks of upside supply and downside demand. Less like "crash will definitely happen" and more like "X_1, ..., X_n all have unknown but likely highly correlated probabilities, so if one happens they all happen and if you get X_1, ..., X_n all at once there'll definitely be a crash" I think.

nostrademons 5y ago
The last 20 years has taught me to be suspicious of renormalization arguments. History marches on; people have memories, but history itself seems to be a big Markov process where the future depends only on the present and the forces that drive it, not the past. I could believe an argument based on causal links of supply & demand, but I'm skeptical that they'll operate in the direction you suggest. To my eye: remote work was a spring that's been ready to burst since about 2014 but needed the pandemic to catalyze it; we're not going back to offices; home offices are going to become very desirable; savings (in the form of financial assets, at least) are increasing because of inflation; and supply chain bottlenecks are not normalizing anytime soon.
- throwawaygh 5y ago
  > The last 20 years has taught me to be suspicious of renormalization arguments. 2021-2008 = 13 < 20.
  - nostrademons 5y ago
    I'm actually thinking of late-90s up through today: There were a lot geopolitical papers written then about the unipolar world and how we'd reached the end of history and liberal democracy had won. To the extent that people imagined threats to U.S. dominance, they usually envisioned state actors like Russia or China. Few people predicted the rise of international terrorism, widespread state failures, mass migrations, and internal destabilization of states. There were a fair number of commentators who said that the Internet was a fad and we'd go back to calling up businesses when we got tired of webpages. The dot-com boom was a bona-fide bubble - it burst, severely - and yet it also wasn't. I predicted the Amazon would go out of business in 2001 when their stock was down 90% in a year; it now owns retail, and is worth 50x that. People wondered how the hell a website for throwing virtual sheep at one another was worth $15B in 2007. It's now worth $942B, and blamed for taking down governments. We just had a page at the top of HN about someone's 2011 prediction that Bitcoin would fail. It did, for all the reasons they listed, and yet is still worth 20,000x what it was going for then. It's also had some 60-70% declines in that process. The general lesson I take from these is that life is a whole lot more random and absurd than a lot of people think it is. A lot of people who lose everything in bubbles are right about the direction of the trend (oftentimes on a subconscious level), but wrong about magnitude and timing. I see a lot of people asking whether today's housing situation is like 2008, and to my eye the fundamental forces are nothing alike. But 2005-2008 might have been the bubble before the trend, which sets up the causal forces leading to a genuine housing shortage now.

dageshi 5y ago

What's not being spoken about in the article is interest rate increases. They're as low as they can go, the only way is up at some point. If rates increase, servicing current debts maybe impossible forcing people to sell and financing new purchases at current prices is out of reach for new buyers. Given current inflation expectations (and reality) the ECB will probably come under a lot of pressure to start raising rates. The French are already trying to play down inflation to try and avoid the above scenario I'm guessing https://www.bloomberg.com/news/articles/2021-11-18/don-t-panic-about-inflation-france-s-le-maire-tells-europe https://www.bloomberg.com/news/articles/2021-11-18/don-t-pan...

gfodor 5y ago
"The only way is up" is a bad argument for trying to predict interest rates. There are other ways. First, no change. Second, negative. People have been making the "they have to go up eventually!" argument so long now that I'm starting to think that no, they don't have to.
throwawaygh 5y ago
Although true in Europe, the US is less susceptible to this because of our 30 year fixed rate mortgages. In fact, here, it's the opposite: interest rate increases -> decreased housing prices -> decreased tax assessments -> lower total cost of ownership for already-issued loans -> less risk of default for current home owners. In a vacuum.
- xxpor 5y ago
  I think the risk in the US is if house valuations fall too much and you're severely underwater, people will just walk away from mortgages. I believe we saw this in 08. Not as direct a risk in non-fixed mortgage countries, but still an issue.
- jacquesm 5y ago
  Plenty of fixed rate mortgages in Europe. 30 year fixed is about 2% here at the moment.

throwvirtever 5y ago

> For the bubble to burst, a lot of underutilized housing would need to come onto the market at once... It doesn't have to be a lot. It might only require a little underutilized housing to cause a price drop, depending on how inelastic the market is. If that is indeed the case, then the high-price situation would be fairly fragile, and worthy of being called a "bubble", even if it reflects a current shortage.

jimbob45 5y ago

All I hear from these threads is "more supply more supply increase the supply". What is the target here? Should everyone have a vacation home in every US city? Should everyone be allowed unlimited houses to rent out in addition to the one they own? We already have enough housing to house everyone in the US (including the homeless) with ease. Where are we going to draw the line in the name of investment and speculation?

mbg721 5y ago
I used to think the issue was "Yes, there are houses you can buy, but not enough in the places where the jobs are.". Now I'm less convinced, just because near me, I hear about bidding wars in neighborhoods that have no good reason to be trendy.
sofixa 5y ago
The article is about the ECB, so the EU, not US. In any case, housing not where people want it isn't of much use. There are ongoing shortages of housing in many of the big cities in France, Germany, Netherlands. Semi-abandoned houses in the middle of nowhere don't help with that.

lkrubner 5y ago

Strongly agree, and furthermore the phrase "a bubble" only works as a metaphor if we associate debt with empty air, and therefore the metaphor only works if we are talking about debt. But the article says that people's savings increased massively during the pandemic, which would be an ahistorical prelude to a bubble.

pxue 5y ago

But the problem is how much of the demand is artificially proped up by the extremely low borrowing rate? What central banks and feds need to think about is, if they raise rates to combat high inflation, will the higher rates induce a coma in the borrowing market, thus overcorrecting the market into a high supply/low demand situation. While your argument is logically sound, it's not the whole picture

nostrademons 5y ago
Could be. Or the higher rates might dry up liquidity but not affect prices, as they did in the 81-82 recession. (In other words, nobody buys houses because they can't afford to, but nobody sells houses either because they don't want to take a loss and can just live in them.) Or the market correction makes central banks flinch and they reverse their interest rate hikes, as they did in 2019. Or they hike rates, but not enough to offset inflation, and so real interest rates remain negative and prices keep going up. The whole picture is complex. Anyone who predicts it correctly stands to make a lot of money.
- satellite2 5y ago
  > they hike rates, but not enough to offset inflation, and so real interest rates remain negative and prices keep going up. So stagflation, with the prices going up but down in real terms. That seems to be the best case scenario, the way to reduce overinflated asset prices without causing a panic. And I'm pretty sure central bankers are currently dreaming of pulling this off, but it seems the market is much more aware of inflation than it was in the 70s, so I'm not sure it's more than a dream.