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>> But look at home prices now... I suspect we're seeing another bubble and for mostly the same reasons.

by oblib 5y ago

twblalock 5y ago
The reasons for high prices are very different now. In 2008 mortgages were handed out like free candy to people who were likely to default. Then they were securitized and a lot of financial institutions invested in them. When investors realized the mortgage securities were much more risky than had been originally believed, the whole thing came crashing down. Today, people getting mortgages are scrutinized very heavily, and they can actually afford them. A lot of the offers are cash anyway. The cause of increased house prices today is fundamentally a shortage of housing, compounded by high construction costs for new housing, low mortgage rates, and buyers’ increased preference for more space because of the pandemic. None of those factors is suddenly going to disappear in a way that would cause housing prices to burst like a bubble. We may see a slow price decline as those factors get sorted out over the next few years, but that would not be a bubble bursting, it would just be an adjustment.
- deleted 5y ago
  [deleted]
- fennecfoxen 5y ago
  Housing is expensive because of a demand spike, as people are now consuming house-space where they used to consume office-space, school-space, and other public or communal spaces. Any return to these spaces being open, especially any pullback from WFH, is likely to result in a reduction of this demand. The question is the extent to which this will happen, where it will happen, and whether it will be sudden. Something is certain to happen along these lines. The other question is what happens if the Fed hikes interest rates and mortgages are much more expensive. Since most people still have mortgages and most mortgage owners are limited by a price-per-month expenditure, this could hurt demand as well too, and depress prices.
- throw0101a 5y ago
  > Today, people getting mortgages are scrutinized very heavily, and they can actually afford them. A lot of the offers are cash anyway. The average credit score in the US for those getting a mortgage dropped in the lead up to 2008: * https://www.financialsamurai.com/the-average-credit-score-to-qualify-for-a-mortgage-is-now-very-high/ https://www.financialsamurai.com/the-average-credit-score-to... The US is at about the same volume (by dollars) now as in 2003, but back then there was a pretty even split between those with a credit score of 660-719, 710-759, and >760. Now the vast majority of folks have scores >760.
pevey 5y ago
I don't disagree. No way I would move up to a bigger house at today's prices. BUT...I've been saying that for a while now, so I guess I look like the idiot. No one really knows. Relevant John Keynes quote related to short sellers: "The market can stay irrational longer than you can stay solvent." Even if it something is a bubble, it's impossible to say when it will burst/how it will burst. Saying, "this asset will see a significant drop at some time in the future" is always both true and totally unhelpful in any practical sense.

>> But look at home prices now... I suspect we're seeing another bubble and for mostly the same reasons.

by oblib 5y ago

>> But look at home prices now... I suspect we're seeing another bubble and for mostly the same reasons.

The reasons for high prices are very different now. In 2008 mortgages were handed out like free candy to people who were likely to default. Then they were securitized and a lot of financial institutions invested in them. When investors realized the mortgage securities were much more risky than had been originally believed, the whole thing came crashing down. Today, people getting mortgages are scrutinized very heavily, and they can actually afford them. A lot of the offers are cash anyway. The cause of increased house prices today is fundamentally a shortage of housing, compounded by high construction costs for new housing, low mortgage rates, and buyers’ increased preference for more space because of the pandemic. None of those factors is suddenly going to disappear in a way that would cause housing prices to burst like a bubble. We may see a slow price decline as those factors get sorted out over the next few years, but that would not be a bubble bursting, it would just be an adjustment.

deleted 5y ago
[deleted]
fennecfoxen 5y ago
Housing is expensive because of a demand spike, as people are now consuming house-space where they used to consume office-space, school-space, and other public or communal spaces. Any return to these spaces being open, especially any pullback from WFH, is likely to result in a reduction of this demand. The question is the extent to which this will happen, where it will happen, and whether it will be sudden. Something is certain to happen along these lines. The other question is what happens if the Fed hikes interest rates and mortgages are much more expensive. Since most people still have mortgages and most mortgage owners are limited by a price-per-month expenditure, this could hurt demand as well too, and depress prices.
throw0101a 5y ago
> Today, people getting mortgages are scrutinized very heavily, and they can actually afford them. A lot of the offers are cash anyway. The average credit score in the US for those getting a mortgage dropped in the lead up to 2008: * https://www.financialsamurai.com/the-average-credit-score-to-qualify-for-a-mortgage-is-now-very-high/ https://www.financialsamurai.com/the-average-credit-score-to... The US is at about the same volume (by dollars) now as in 2003, but back then there was a pretty even split between those with a credit score of 660-719, 710-759, and >760. Now the vast majority of folks have scores >760.

pevey 5y ago

I don't disagree. No way I would move up to a bigger house at today's prices. BUT...I've been saying that for a while now, so I guess I look like the idiot. No one really knows. Relevant John Keynes quote related to short sellers: "The market can stay irrational longer than you can stay solvent." Even if it something is a bubble, it's impossible to say when it will burst/how it will burst. Saying, "this asset will see a significant drop at some time in the future" is always both true and totally unhelpful in any practical sense.