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In 2008, mortgages were being given out like free candy, without proof of ability to pay. Then the impending wave of defaults nearly destroyed the financial sys

In 2008, mortgages were being given out like free candy, without proof of ability to pay. Then the impending wave of defaults nearly destroyed the financial system. It was fundamentally a problem of unknown risk. Since then, mortgage underwriting has tightened up quite a bit. The people who are buying houses right now can actually afford to do it, and they are qualified for the mortgages they are getting. In many cases they are also making cash offers. In a lot of cases, they can afford to do it because their stock investments, options, RSUs etc. did very well over the past few years. If there is a bubble, that's where it is. Unless we see a new wave of defaults on mortgages, which I think is pretty unlikely given the above, I don't expect to see a housing bubble burst. On top of that, there is record low housing inventory, construction costs are high, and low interest rates enable buyers to pay more and still afford the monthly payments. Also, people have come to value having more space during the pandemic. Those factors aren't going to disappear overnight and burst a price bubble. Maybe we will see house prices decline gradually over the next few years as these issues clear up, but that's not a bubble bursting.

walrus01 5y ago
That is a very good point. I certainly hope we don't have entities like Countrywide running around handing out no-documentation mortgages like candy. But I think the price bubble for homes is outpacing ordinary peoples' growth in income in many cities. Not everyone is a HN reader with a six figure salary and money in S&P 500 index funds, ETFs that have almost doubled since 2017. Another important metric to look at is the percentage of people or dual-income couples whose salaries are more modest, who could have financially handled the burden of a mortgage for a home (or condo) at 2014 market rates and prices, and who have now been permanently priced out of the market into being a permanent renter. The home they might want to buy has now doubled in value but their salaries are not markedly different from 2014.
- dcolkitt 5y ago
  > Not everyone is a HN reader with a six figure salary and money in S&P 500 index funds, ETFs that have almost doubled since 2017. But not everyone has to be, because the supply of housing is so limited. The number of new homes is still way below population growth, and it's increasingly becoming a trend for boomers to "age in place" instead of downsizing as they age. That means a large number of would be home buyers are competing for a tiny pool of available homes. In that kind of scenario the price of housing can become completely untethered from what the "average family" can afford, and totally driven the wealth of a small elite.

walrus01 5y ago

That is a very good point. I certainly hope we don't have entities like Countrywide running around handing out no-documentation mortgages like candy. But I think the price bubble for homes is outpacing ordinary peoples' growth in income in many cities. Not everyone is a HN reader with a six figure salary and money in S&P 500 index funds, ETFs that have almost doubled since 2017. Another important metric to look at is the percentage of people or dual-income couples whose salaries are more modest, who could have financially handled the burden of a mortgage for a home (or condo) at 2014 market rates and prices, and who have now been permanently priced out of the market into being a permanent renter. The home they might want to buy has now doubled in value but their salaries are not markedly different from 2014.

dcolkitt 5y ago
> Not everyone is a HN reader with a six figure salary and money in S&P 500 index funds, ETFs that have almost doubled since 2017. But not everyone has to be, because the supply of housing is so limited. The number of new homes is still way below population growth, and it's increasingly becoming a trend for boomers to "age in place" instead of downsizing as they age. That means a large number of would be home buyers are competing for a tiny pool of available homes. In that kind of scenario the price of housing can become completely untethered from what the "average family" can afford, and totally driven the wealth of a small elite.