4 ms·

In particular a bursting of the housing bubble that has been reinflated (and then some) since the last time it popped in '08.

mikeyouse 5y ago
There's no evidence at all for this. The exotic mortgage products (e.g. reverse ARMs) have essentially disappeared, people's homes are well capitalized, lending standards are much higher than they were, there's very low levels of home equity debt, overall debt payments as a percent of household income are at very low levels. The people waiting for a housing crash are going to wait a long time. This one chart sums it up well: https://fred.stlouisfed.org/series/MDSP https://fred.stlouisfed.org/series/MDSP Mortgage debt service payments as a percent of disposable income are near all-time lows and at roughly 1/2 the number of the GFC peak. Since the vast majority of home loans are fixed -- what's the mechanism for rate hikes to cause a housing crash?
- phkahler 5y ago
  The people who should not have been buying houses are now renting. Home prices in my area are higher than they were in 2008. Prices will still drop when interest rates rise - that's how it works. It's good that people will be able to keep their homes this time around, but that doesn't mean it's not a bubble.
- ameister14 5y ago
  Yeah but that's an overall lowering of debt servicing as a percent of disposable income. The only part that hasn't dropped much is consumer debt. Plus while reverse amortization might be less common, ARMs generally are still very popular and you'll see a hike in overall debt service associated with rising interest rates. I don't know what's gonna happen with the housing market and I don't think it'll crash either but I think part of the reason is because private equity has bought a huge amount of housing - BlackRock bought what, 10-15% of the houses sold in 2020?
  - mikeyouse 5y ago
    Consumer debt is also low; https://fred.stlouisfed.org/series/CDSP https://fred.stlouisfed.org/series/CDSP And metrics like credit card delinquencies are at historic lows: https://fred.stlouisfed.org/series/DRCCLACBS https://fred.stlouisfed.org/series/DRCCLACBS ARMs actually aren't very popular - fewer than 15% of new mortgages are ARM. > BlackRock bought what, 10-15% of the houses sold in 2020? People vastly overestimate how large players like Blackrock are. There are something like 80 million single-family homes in the US. Of these, Blackrock owns 80 thousand. If they bought every one of those homes in 2020 (they didn't) - it would represent more like 1% of homes sold that year. And of course there are millions of condos not figured into my denominator. They're huge, but way under 1% of purchases.
    - alphabettsy 5y ago
      Naïve question, but what happens if something like 5-10% of those ARMs default and the traditional default rate increases too?
    - ameister14 5y ago
      Of the 80 million single family homes in the US, how many are sold each year? For your math to work (80,000 as 1%) it would have to be 8,000,000 or 10% of the overall supply. I can actually answer for you - roughly 820,000 single family homes were sold in 2020. So if BlackRock bought 80,000 homes then, that'd be about 10%.
      - mikeyouse 5y ago
        You're conflating some figures -- 820k new homes were sold[1] -- along with roughly 5.6 million existing homes[2]. [1] - https://www.housingwire.com/articles/new-home-sales-historically-high-in-2020/ https://www.housingwire.com/articles/new-home-sales-historic... [2] - https://cdn.nar.realtor/sites/default/files/documents/ehs-01-2022-breakouts-of-single-family-condo-and-co-op-2022-02-18.pdf https://cdn.nar.realtor/sites/default/files/documents/ehs-01...
        5y ago
- Qub3d 5y ago
  My (very amateur) understanding of the housing issue is that its primarily a problem of supply. Since houses have been redefined from a dwelling to a financial investment, there is strong pressure on political policy to encourage asset appreciation. That means NIMBYism and corporate REITs are acting as two wealthy and highly-motivated special interest groups in favor of making new development nigh-impossible. Or at least, so I've been lead to believe. All I know for sure is I can't by a third of the sq. ft my older sibling could 8 years ago.
- Auracle 5y ago
  I would think a lot of people might be rushing to get a mortgage before rates go up. Whatever the reasons, home prices are ridiculously inflated right now. They’ll need to go down for first time home buyers to have a chance, so at some point there will be pressure for home prices to drop. For what it’s worth I’m in a rural part of the country and it’s not just a city problem.

mikeyouse 5y ago

There's no evidence at all for this. The exotic mortgage products (e.g. reverse ARMs) have essentially disappeared, people's homes are well capitalized, lending standards are much higher than they were, there's very low levels of home equity debt, overall debt payments as a percent of household income are at very low levels. The people waiting for a housing crash are going to wait a long time. This one chart sums it up well: https://fred.stlouisfed.org/series/MDSP https://fred.stlouisfed.org/series/MDSP Mortgage debt service payments as a percent of disposable income are near all-time lows and at roughly 1/2 the number of the GFC peak. Since the vast majority of home loans are fixed -- what's the mechanism for rate hikes to cause a housing crash?

phkahler 5y ago
The people who should not have been buying houses are now renting. Home prices in my area are higher than they were in 2008. Prices will still drop when interest rates rise - that's how it works. It's good that people will be able to keep their homes this time around, but that doesn't mean it's not a bubble.
ameister14 5y ago
Yeah but that's an overall lowering of debt servicing as a percent of disposable income. The only part that hasn't dropped much is consumer debt. Plus while reverse amortization might be less common, ARMs generally are still very popular and you'll see a hike in overall debt service associated with rising interest rates. I don't know what's gonna happen with the housing market and I don't think it'll crash either but I think part of the reason is because private equity has bought a huge amount of housing - BlackRock bought what, 10-15% of the houses sold in 2020?
- mikeyouse 5y ago
  Consumer debt is also low; https://fred.stlouisfed.org/series/CDSP https://fred.stlouisfed.org/series/CDSP And metrics like credit card delinquencies are at historic lows: https://fred.stlouisfed.org/series/DRCCLACBS https://fred.stlouisfed.org/series/DRCCLACBS ARMs actually aren't very popular - fewer than 15% of new mortgages are ARM. > BlackRock bought what, 10-15% of the houses sold in 2020? People vastly overestimate how large players like Blackrock are. There are something like 80 million single-family homes in the US. Of these, Blackrock owns 80 thousand. If they bought every one of those homes in 2020 (they didn't) - it would represent more like 1% of homes sold that year. And of course there are millions of condos not figured into my denominator. They're huge, but way under 1% of purchases.
  - alphabettsy 5y ago
    Naïve question, but what happens if something like 5-10% of those ARMs default and the traditional default rate increases too?
  - ameister14 5y ago
    Of the 80 million single family homes in the US, how many are sold each year? For your math to work (80,000 as 1%) it would have to be 8,000,000 or 10% of the overall supply. I can actually answer for you - roughly 820,000 single family homes were sold in 2020. So if BlackRock bought 80,000 homes then, that'd be about 10%.
    - mikeyouse 5y ago
      You're conflating some figures -- 820k new homes were sold[1] -- along with roughly 5.6 million existing homes[2]. [1] - https://www.housingwire.com/articles/new-home-sales-historically-high-in-2020/ https://www.housingwire.com/articles/new-home-sales-historic... [2] - https://cdn.nar.realtor/sites/default/files/documents/ehs-01-2022-breakouts-of-single-family-condo-and-co-op-2022-02-18.pdf https://cdn.nar.realtor/sites/default/files/documents/ehs-01...
      - 5y ago
Qub3d 5y ago
My (very amateur) understanding of the housing issue is that its primarily a problem of supply. Since houses have been redefined from a dwelling to a financial investment, there is strong pressure on political policy to encourage asset appreciation. That means NIMBYism and corporate REITs are acting as two wealthy and highly-motivated special interest groups in favor of making new development nigh-impossible. Or at least, so I've been lead to believe. All I know for sure is I can't by a third of the sq. ft my older sibling could 8 years ago.
Auracle 5y ago
I would think a lot of people might be rushing to get a mortgage before rates go up. Whatever the reasons, home prices are ridiculously inflated right now. They’ll need to go down for first time home buyers to have a chance, so at some point there will be pressure for home prices to drop. For what it’s worth I’m in a rural part of the country and it’s not just a city problem.