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Real-time market monitoring finds signs of brewing U.S. housing bubble
- RspecMAuthortah 5y agoThe Fed has been consistently wrong over last decade in many of their policy, and their credibility is on the line. The reason home prices are not on line with fundamentals is - well there is just too much liquidity. Money is looking for places to go and there are not many. Except stocks. And then the next bet is real estate. They printed way too much for too long. Interest rate is at historic low, there is way too much savings, and in this inflationary environment, real estate is an excellent leveraged asset. No wonder even institutions are now buying, in fact one in every 3 SFHs in US are now owned by institutions. Oh yeah, the same Dallas Fed chairman did not see the whole inflation thing coming either. Yes, it is different this time.
- juanani 5y ago
- nopenopenopeno 5y agoTheir only option is to be wrong. At the end of the day, the fed has an impossible job to do.
- spaetzleesser 5y agoI still remember Bernanke’s pronouncements before the 2008 crash that everything is just fine. It’s hard to not conclude that they either aren’t very competent or are playing political games.
- JumpCrisscross 5y ago> remember Bernanke’s pronouncements before the 2008 crash that everything is just fine The Fed chair saying "we're fucked" is, on its own, enough to cause a credit crisis. (This is why the Fed doesn't tend to make blanket forward-looking statements like "everything is just fine.")
- deleted 5y ago[deleted]
- spaetzleesser 5y agoI am not aware of them silently doing something about the mortgage bubble either.
- notch656a 5y agoThey can be dissolved. The constitution does not require a central bank.
- nopenopenopeno 5y ago
- posnet 5y agoI wonder about these grand conspiracies. I am on the fence as to whether the world is controlled by a global elite of super geniuses stealing from the unwashed masses. Or whether the people in charge actually are just wildy incompetent. I'd say the evidence supports both.
- tmn 5y agoLying is not the same as incompetent. Also they have to pretend (lie) that they can do something impossible. They are not incompetent. The fed chairs are quite intelligent, but they are not running the show.
- yhoneycomb 5y agoHow is this a "grand conspiracy"? People are going to manipulate things in their favor as much as they have the power to do so. Oligarchs in America and elsewhere have the most power, and thus do the most manipulating. Also, it's no secret that the vast majority of wealth is concentrated in the hands of a few oligarchs.
- vmception 5y agoAs soon as they ever compete against each other, it's the same as none existing at all. That's the easiest way to dismantle that particular grand conspiracy. The most pragmatic approach is to understand that they don't rely on voting to get their way. But they absolutely compete for resource appropriation and their special interest. It is better if they act like gods of their particular domain or sector, so they can exert control over just that and not compete. But it also reinforces that they cannot and do not coordinate much together.
- vmception 5y agoOooh, nice, this has levels to it. 1) The Fed should create the outcomes such that their predictions were wrong 2) While also just having a bad interpretation of data to begin with 3) The Fed is only imagining that its toolkit can cause a specific outcome for economic growth, but it cannot cause humans to transact a certain way or predict what a large group of humans (or large pool of capital) will do. No economist can, and the other economists don't have an infinite balance sheet to try to influence it either. 4) The Fed was never asked to or mandated to do the things it does to stimulus the economy. (Caveat, the stimulus bills in 2020 are a major exception). The Fed just notices that nobody can stop it. Similar to the Supreme Court realizing that and testing it in Marbury v Madison. Congress lacks consensus on it and everyone is afraid of the alternative (Congress having to deal with monetary policy themselves, politically).
- datavirtue 5y agoI agree. Congress is paralyzed (far more than the usual) when it comes to monetary policy and financial services regulation. It's officially their job but not their wheel house. Unsettling.
- pxue 5y agothe job of the Fed is a proven impossible one. Their job is to nudge the entirety of the economy towards one or two of the Fixed Exchange Rate, Free Capital Flow, and Independent Monetary Policy at any given time, but never all three at once. https://en.m.wikipedia.org/wiki/Impossible_trinity https://en.m.wikipedia.org/wiki/Impossible_trinity
- deleted 5y ago[deleted]
- closeparen 5y agoThere is every reason that macroeconomic conditions would affect the value of land, but relatively silly and incidental reasons that the price of land would be so strongly coupled to the price of a home to live in (itself a depreciating commodity).
- onlyrealcuzzo 5y ago> No wonder even institutions are now buying, in fact one in every 3 SFHs in US are now owned by institutions. Source?
- stonogo 5y agoYou won't get a source because it's misinformation. There are US cities wherein one in every three single-family-home purchases were made by investors last quarter: https://www.redfin.com/news/investor-home-purchases-q4-2021/ https://www.redfin.com/news/investor-home-purchases-q4-2021/ so perhaps OP was referring to that.
- onlyrealcuzzo 5y agoI was gonna say - it's nearly impossible for the home ownership rate to be ~65% and 1/3 SFH also owned by institutions. The vast majority of rental stock is not SFH, and the vast majority of rental homes are owned by mom & pop's.
- gitfan86 5y agoI think crypto has played a role in educating more people to how bad it is to hold USD, low interest rates, printed money combined with that are a recipe for people to get into bidding wars and fomo. Ironically this is bad for Bitcoin because it is denominated in USD. Maybe Bitcoin does go to 1M, but only after a loaf of bread costs 1k. I'm not suggesting anyone go out and buy a 2br house for 3 million dollars, but I do think that real estate will hold it's value in general much better than USD.
- dclusin 5y agoUntil the alt coin they were emotionally invested in loses 80% of its value. Then the stock market and USD don't look so bad.
- JumpCrisscross 5y ago> Fed has been consistently wrong over last decade in many of their policy, and their credibility is on the line This is hyperbole. The Fed, by and large, held the American economy together through the financial crisis and more remarkably the pandemic. Until now, neither of those produced meaningful levels of inflation. To say "their credibility is on the line" is to disagree with a multi-trillion dollar bond market taking the Fed's every word very much seriously. > the same Dallas Fed chairman This is the Dallas Fed's leadership [1]. None of them authored this article, certainly not the (interim) president, Meredith Black. If you want the dry stuff, what the Fed is actually saying versus its individual researchers, consult the beige book [2][3]. [1] https://www.dallasfed.org/fed/leadership.aspx https://www.dallasfed.org/fed/leadership.aspx [2] https://www.federalreserve.gov/monetarypolicy/beige-book-default.htm https://www.federalreserve.gov/monetarypolicy/beige-book-def... [3] https://www.federalreserve.gov/monetarypolicy/files/BeigeBook_20220302.pdf https://www.federalreserve.gov/monetarypolicy/files/BeigeBoo... March 2
- datavirtue 5y agoI agree. Prominent investors, scores of former and current federal reserve analysts and directors, traders, and many others have been begging congress for financial regulation--before and after meltdowns. Many of those mentioned above have offered direct, specific advice on what to regulate and how to do it. Crickets...for decades.
- stjohnswarts 5y agoYeah the only people I've seen that say the Fed is useless have been anarchists and libertarians and gold bugs.
- aaaaaaaaata 5y agoThe gears kept turning, doesn't mean irreparable damage wasn't done. Central planners in the USSR were probably lauded by some subset of the citizenship, too. Doesn't mean it wasn't a sham.
- throwoutway 5y agoI wouldn’t call it a sham. I think I’d rather some centralized orchestration of modern finance than none. Im not claiming that centralized Fed is perfectly wise, nor we should be subservient too it. But I also don’t want to live in a non-government state with no financial system.. an example that comes to mind is Somalia.
- vkou 5y ago> The Fed has been consistently wrong over last decade in many of their policy, and their credibility is on the line. Considering that after 2008 and 2020, we did not end up living in a weird Mad-Max blood-covered hellscape, trading bottlecaps for hits of zyme and ammunition (Which would have been the likely ideological outcome of 'just let the whole economy fail'), I think the Fed has weathered the past two decades fairly well.
- gitfan86 5y agoI recently read a book that was basically a diary of a businessman from the great depression with some commentary. It seems like there were two big problems that we have done a good job avoiding since then. #1. Way too many people were rich on paper and with margin. #2. Once the economy started to collapse everyone panicked and tried to avoid spending money, which causes a negative feedback cycle. 2008 was similar to issue 1, but we avoided step 2 by bailing out the banks and auto companies that should have collapsed.
- vkou 5y ago> bailing out the banks and auto companies that should have collapsed. 'Should' is doing a lot of work in that sentence. Should a business that's selling $10 bills for $9 collapse? Yes, that's pretty obvious. Should a business that's consistently selling $10 bills for $10.05, but requires access to short-term liquidity that completely evaporated overnight to function, and is now not functioning, because some other unrelated part of the economy is sick, and all flow of credit has stopped? Should that latter business fail? Who's going to be better off for it failing? Even if killing that business will create an economic catastrophe, as well as a mountain of geopolitical concerns that are the consequences of de-industrialization? [1] On a metric of anything but ideological purity, the fed stopping the economic collapse where it did was a bargain at twice the price. [1] Just ask Russia in 2022 how well de-industrializing all of its inherited Soviet economy has worked out for it. It's now in the unenviable situation where its domestic production can't even sustain a Soviet-era standard of living, without relying on now-sanctioned foreign trade. All because it hyper-optimized on growing the 'productive' parts of its economy (Oil, oil, gas, oil, and gas), and let the unproductive parts (all that old, crappy, internationally uncompetitive Soviet industry) rot away.
- brian_cloutier 5y agoThis is a dumb question but... does housing have fundamentals? There's a demand curve of renters willing to rent housing at different price points and I can see how this would put a lower-bound on housing prices, but why should there be any upper bound? When you buy a house you intend to live in there is no associated revenue stream, and the only return you can hope for is your expectation that someone else will buy the house from you for more in the future. Maybe you can quantify that return, by modeling a rising population and municipalities which are slow to add housing? It still feels like housing is worth what other people are willing to pay for it, that's the fundamental.
- 88913527 5y agoI think it does have fundamental value. A stock's fundamental value is in its expected lifetime returns. For a home, it's the value of having shelter. Some areas are better to have shelter than others (favorable climate, access to a job center, etc).
- lend000 5y agoRental vacancy rates remain near all time lows, construction is still expensive, the population is growing, and most cities are doing little zoning-wise to improve their housing supply. This bubble has a ways to go.
- mirntyfirty 5y agoNot to be intentionally contrarian, but do you have a data source for the vacancy rate? My understanding is that some states have been losing people net and have still had rents and home values skyrocket. I think an increase in Airbnb would be one possible contributor.
- TameAntelope 5y agoC'mon folks, I know it's fun to slap, "Source?" on every comment, but it took me ~15 seconds to find a number of places where this data exists and is readily available. [0] 'xnx did the same thing as a sibling comment, but I just wanted to add that we can do better! This info is super readily available. [0] https://fred.stlouisfed.org/series/RRVRUSQ156N https://fred.stlouisfed.org/series/RRVRUSQ156N
- hall0ween 5y agoWhile I agree people have the ability to look up others’ claims for themselves, it’s a lazy way to go about it — I make an argument and then say “you look it up!”
- xnx 5y agoFirst result: https://fred.stlouisfed.org/series/RRVRUSQ156N https://fred.stlouisfed.org/series/RRVRUSQ156N
- datavirtue 5y agoThe problem is so bad that you can lose population and still be under water with the housing supply.
- sportslife 5y ago
- innagadadavida 5y agoThey use price to rent ratio for determining if there is a bubble. This seems like a flawed metric - both home prices and rents are increasing. What is not increasing is the income. So shouldn’t they be tracking median income to median home prices and rents in local areas? I feel this will show a different picture and we might already be in bubble territory - especially if the interest rates co tongue to spike.
- imapeopleperson 5y agoIncome most certainly is increasing
- spaetzleesser 5y agoThe ratio of price/income has been growing way faster over the last decades.
- stonogo 5y agoIn absolute terms, yes. It's not, however, increasing fast enough to keep up with rent, food, fuel, power, or inflation.
- VWWHFSfQ 5y agoI personally know of two parties currently trying to buy a house. The first is a young couple in New Jersey. The other is a retired couple in the Tampa Bay area in Florida. Both of them are extremely well-qualified. Both of them have put in at least 3 bids on houses in the last year or so and every time they got out-bid by a lot. Imagine a listed house at $600,000. You offer $620,000. You lose and find out later the house sold for $720,000. This is freaking New Jersey and Tampa, Florida. None of this is realistic. Why is it like this?
- s1artibartfast 5y agoIt is actually insane I just lost after putting a $1,325,000 bid on a $1,000,000 list price for a 1000sqft house Edit, Zero added
- gautamcgoel 5y agoOT, but I enjoy the hitchhiker's reference in your username :)
- daenz 5y agoWell clearly you were an order of magnitude too low. Edit>> they left off a zero in the first number.
- s1artibartfast 5y agoThanks! Now I get why my offers keep getting turned down =)
- pavlov 5y agoAt the same time Zillow managed to lose a billion dollars last year buying and selling homes (the so-called “iBuy” program that they were forced to terminate). Something doesn’t add up? But maybe it’s just a question of most homes on the market actually not being desirable enough to get these high bids.
- 5y ago
- Johnny555 5y agoI bought my house about a year ago, since then it's gone up in value by about 30% (based on comps of nearby home sales) A neighbor sold his house recently, he said he had a half dozen offers in a week, 3 were over his asking price, 2 were all-cash with no contingencies. I don't know how this market can be sustainable or how the average buyer can compete if they need a loan.
- deleted 5y ago[deleted]
- QuadmasterXLII 5y agoIs it possible to have stable housing prices when mortgages are available at a rate markedly below inflation?
- aaomidi 5y agoI mean it's also that construction is hard and expensive. I want to build, I don't even know where to start and I don't have a super elastic budget. Oh, and mortgages for construction are so much worse. We really need to encourage people to build by having a streamlined process.
- QuadmasterXLII 5y agoI bought a house last year. I wanted to build, but after investigating all my options, building even a 900 square foot hut was going to cost more than buying a 1500 square foot house, I couldn't justify it.
- gautamcgoel 5y agoIsn't this, in some sense, a good thing? I prefer a world where the current insane prices are indicative of a bubble and eventually come crashing down to a world where high prices are just the new normal.
- djfobbz 5y agoFinally! I'm relieved to hear that "Real-time market monitoring" has caught up to what my common sense has been predicting for the last 8 months. I wonder if this "monitoring" whiz has any future outlook on food shortages?
- dstainer 5y agoLet me preface this by saying I'm so far out of my lane on this, however I have some thoughts on the paper. - One thing that I've picked up from a number of sources that isn't mentioned in the article, is that millennials entering the home buying phase of their lives as being a big reason why housing was primed to pop between 2020-2024. Basically demographics have played a huge part in this boom. - Most mortgages are actually in good shape from a paper perspective [1] - Most mortgages are 30-yr compared to the crazy ARM instruments [2] My theory is that home prices will NOT drop, like in 2008, but rather will stabilize. Three reasons why: 1. Milliennials will keep overall demand up 2. Homebuilders will slow down on producing new inventory, and we're already at all time lows for inventory 3. Existing homeowners will be hesitant to sell because most are locked into a 30-yr with most likely a sub 2-3% mortgate All of that, in theory, will result in less overall supply which will keep prices stable [1] https://twitter.com/LoganMohtashami/status/1508458788969345025 https://twitter.com/LoganMohtashami/status/15084587889693450... [2] https://twitter.com/lenkiefer/status/1507870733615214598 https://twitter.com/lenkiefer/status/1507870733615214598
- peakay 5y agohouse starts are increasing https://fred.stlouisfed.org/series/HOUST https://fred.stlouisfed.org/series/HOUST i wouldn't expect this to level out or even decrease without a drop in prices, but what do i know
- adam_arthur 5y ago1. We have a demographic trend towards lower demand as GenZ population is smaller than Millenial, and Baby boomers will mostly die off over the next 10 years (Japan problem). Yes this considers immigration 2. We are close to all time highs in home construction pipeline, and the rate of starts is at 2000s bubble levels and increasing. We will likely eclipse the 70s building peak sometime this year. 3. If they aren't selling they also aren't buying (generally). Somebody choosing not to move due to low rate has no net effect on inventory These narratives have been powerful in shaping the FOMO psychology though, despite data showing the exact opposite is true. What's driving housing now is pure psychology, and low active listings (not low structural supply). The Fed will likely start selling MBS, driving rates to 6% or above to solve both of these. Though the fact they even bought MBS for so long to begin with somewhat implies they don't care about creating a bubble in housing. Maybe they do nothing and let it ride
- throw8383833jj 5y agoa large premise here is that housing is in a bubble because of house price to income ratio is very high. This by itself is not indicative of a housing bubble! It's indicative of lower and lower standards of living as shelter becomes increasingly expensive. Really really high housing prices are sustainable if the supply is low enough. Imagine a city of 100K with only 10 houses for sale, it doesn't matter if 99K can't afford houses. all that matters is that 10 or more people can afford the remaining houses. as long as that's the case, prices can and will continue to climb higher and higher. this is an incredibly distopian future where fewer and fewer can afford shelter. Now ask yourself where supply is going. that's the key to understanding the next moves in the housing markets. Builders are still saying, that even at the current prices, they're having a hard time getting a good ROI(considering all the supply and labor shortages) and aren't very bullish which means supply can't increase much. And in much of the country increasing housing supply is made illegal through regulations and zoning.
- naveen99 5y agoHow much housing supply per person would be enough for you ? Currently we are at 1000 square feet per capita, doubled in last 40 years: https://images.app.goo.gl/PpbQjaEDAiFZ5PP28 https://images.app.goo.gl/PpbQjaEDAiFZ5PP28
- itake 5y agoThis doesn't consider the 3 L's of real estate.
- naveen99 5y agoReplace it with: people, people, people.
- horns4lyfe 5y agoThere’s no way you can believe that’s a good indicator of real housing supply.
- betaby 5y agoMeanwhile in Canada https://www.realtor.ca/real-estate/24203995/81-st-johns-rd-toronto-junction-area https://www.realtor.ca/real-estate/24203995/81-st-johns-rd-t...