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I can’t help but think of that saying “the market can stay irrational longer than you can stay solvent.” Yes, prices in many markets are very high and appreciat

I can’t help but think of that saying “the market can stay irrational longer than you can stay solvent.” Yes, prices in many markets are very high and appreciating at a rapid clip, but if there are buyers, competition, and houses are continuing to move quickly, then it’s a bold statement to say they are overvalued and that we should predict a significant decline.

true_religion 4y ago
Well in this case it’s more like the market can stay irrational longer than you can stay homeless. Secure shelter is something that everyone needs to live, and in our economy you further need to find one close enough to your workplace. Thus, even if you think prices are crazy, you still must pay them. In situations like this, where demand is for a vital good and supply constrained, the government should be carful about managing the market. From what I can see, US politicians do care about the housing problem but their solutions thus far just exacerbate it by injecting guaranteed loan money and driving up prices.
pm90 4y ago
> but if there are buyers, competition, and houses are continuing to move quickly, They’re not though. Thats the whole problem. Asset bubbles can inflate the paper value and there might still be some trading activity. But if nobody can actually buy the asset, it’s pretty much useless.
- stepanhruda 4y ago
  That is what they are saying though - people are actually buying the assets? All anecdotes I have seen recently say that houses go off market very quickly.
  - pm90 4y ago
    They may be going off the the market very quickly now. That’s exactly how asset inflation works. People living in their homes that are suddenly worth millions of dollars aren't going to sell their homes now necessarily. When they do get around to selling it the market might not be the same.
- nemo44x 4y ago
  People are buying them though. I think the problem is people think they’re richer than they are and don’t want to live in the places their income and wealth suggest they should. Previous generations handled this better.
  - aeroplanetext 4y ago
    People are very opposed to the idea that they can’t buy a house where they grew up, or in an area they feel is comparable. Which I suppose I can understand. But to your point — things change, you aren’t rich enough, it sucks, get over it.
    - hackerfromthefu 4y ago
      But so much of the new age groups is sold the dream HARD by social media ala Instagram. Aspirationalism is far worse than it was with previous generations.
- abxytg 4y ago
  Oh man yes they are. Buying a house right now is a complete circus and lottery. Competition is insane and everything sells in two weeks max.
nwiswell 4y ago
> if there are buyers, competition, and houses are continuing to move quickly, then it’s a bold statement to say they are overvalued and that we should predict a significant decline. No, for the simple reason that (most) people buy homes with mortgages. Take a look at the 30 year mortgage interest rate over the past few months. The total cost to own a newly purchased home is what matters, not the actual sale price. That's mostly paid by the bank. Even if buyers are prepared to absorb the massive increase in total cost of ownership necessary to keep prices moving upward, it probably doesn't matter because many prospective buyers will no longer even satisfy the mortgage DTI qualification at current prices. You may object that some are buying with cash. While that's true, it's not enough of the market to sustain prices.
- downrightmike 4y ago
  Also, those cash offers from companies don't always work out, look at the haircut Zillow took.
- streetcat1 4y ago
  So this is not entirely correct. If I am not mistaken 30% of buyers are cash buyers, hence they do not care about the mortgage rate. Second, the big issues is with houses supply. The high rate basically lock most current sellers which have very low mortgage rate (compared to 5%), hence reducing the supply more.
  - ryanSrich 4y ago
    Why would anyone pay cash for a house when even a horrendous mortgage rate is still only 6%? That cash is earning 10% easily with zero effort. Put 15 minutes of effort in and open a Betterment account and you’re likely getting closer to 20%. Cash buyers make no sense to me.
    - throw123123123 4y ago
      Have you checked your portfolio lately?
refurb 4y ago
Housing is a notoriously illiquid asset with high transaction costs. In addition, the percent that turns over each year is an incredibly small percent of all homes (and homes aren’t fungible, each one is unique, so comparables are imperfect). That makes price discovery harder and means that the market price can lag what is a sustainable long-term price.
ryanSrich 4y ago
I would agree. I think the fact that mortgage rates have essentially doubled in the last 3 months, but housing prices continue to climb tells you we’re not even close to the ceiling.
onlyrealcuzzo 4y ago
Overvalued is a fundamentals statement. It is not a prediction on future prices. If someone buys an asset for $100B that yields one penny per year with no growth - it is safe to say it's overvalued / a speculative investment. It does not mean that someone won't buy it for $200B tomorrow.
sass_muffin 4y ago
The thing is I don't think it is bold at all. Housing being overvalued seems perfectly obvious consequence of negative or near-zero interest rates. One side effect of those policies is that the mortgage rates were artificially lowered. A lot of people buying houses unfortunately don't really look at aggregate home ownership cost and focus (incorrectly) on monthly payments. So, because they can afford the monthly payment, they think they can afford the house. This of course works works until the music stops.

true_religion 4y ago

Well in this case it’s more like the market can stay irrational longer than you can stay homeless. Secure shelter is something that everyone needs to live, and in our economy you further need to find one close enough to your workplace. Thus, even if you think prices are crazy, you still must pay them. In situations like this, where demand is for a vital good and supply constrained, the government should be carful about managing the market. From what I can see, US politicians do care about the housing problem but their solutions thus far just exacerbate it by injecting guaranteed loan money and driving up prices.

pm90 4y ago

> but if there are buyers, competition, and houses are continuing to move quickly, They’re not though. Thats the whole problem. Asset bubbles can inflate the paper value and there might still be some trading activity. But if nobody can actually buy the asset, it’s pretty much useless.

stepanhruda 4y ago
That is what they are saying though - people are actually buying the assets? All anecdotes I have seen recently say that houses go off market very quickly.
- pm90 4y ago
  They may be going off the the market very quickly now. That’s exactly how asset inflation works. People living in their homes that are suddenly worth millions of dollars aren't going to sell their homes now necessarily. When they do get around to selling it the market might not be the same.
nemo44x 4y ago
People are buying them though. I think the problem is people think they’re richer than they are and don’t want to live in the places their income and wealth suggest they should. Previous generations handled this better.
- aeroplanetext 4y ago
  People are very opposed to the idea that they can’t buy a house where they grew up, or in an area they feel is comparable. Which I suppose I can understand. But to your point — things change, you aren’t rich enough, it sucks, get over it.
  - hackerfromthefu 4y ago
    But so much of the new age groups is sold the dream HARD by social media ala Instagram. Aspirationalism is far worse than it was with previous generations.
abxytg 4y ago
Oh man yes they are. Buying a house right now is a complete circus and lottery. Competition is insane and everything sells in two weeks max.

nwiswell 4y ago

> if there are buyers, competition, and houses are continuing to move quickly, then it’s a bold statement to say they are overvalued and that we should predict a significant decline. No, for the simple reason that (most) people buy homes with mortgages. Take a look at the 30 year mortgage interest rate over the past few months. The total cost to own a newly purchased home is what matters, not the actual sale price. That's mostly paid by the bank. Even if buyers are prepared to absorb the massive increase in total cost of ownership necessary to keep prices moving upward, it probably doesn't matter because many prospective buyers will no longer even satisfy the mortgage DTI qualification at current prices. You may object that some are buying with cash. While that's true, it's not enough of the market to sustain prices.

downrightmike 4y ago
Also, those cash offers from companies don't always work out, look at the haircut Zillow took.
streetcat1 4y ago
So this is not entirely correct. If I am not mistaken 30% of buyers are cash buyers, hence they do not care about the mortgage rate. Second, the big issues is with houses supply. The high rate basically lock most current sellers which have very low mortgage rate (compared to 5%), hence reducing the supply more.
- ryanSrich 4y ago
  Why would anyone pay cash for a house when even a horrendous mortgage rate is still only 6%? That cash is earning 10% easily with zero effort. Put 15 minutes of effort in and open a Betterment account and you’re likely getting closer to 20%. Cash buyers make no sense to me.
  - throw123123123 4y ago
    Have you checked your portfolio lately?

refurb 4y ago

Housing is a notoriously illiquid asset with high transaction costs. In addition, the percent that turns over each year is an incredibly small percent of all homes (and homes aren’t fungible, each one is unique, so comparables are imperfect). That makes price discovery harder and means that the market price can lag what is a sustainable long-term price.

ryanSrich 4y ago

I would agree. I think the fact that mortgage rates have essentially doubled in the last 3 months, but housing prices continue to climb tells you we’re not even close to the ceiling.

onlyrealcuzzo 4y ago

Overvalued is a fundamentals statement. It is not a prediction on future prices. If someone buys an asset for $100B that yields one penny per year with no growth - it is safe to say it's overvalued / a speculative investment. It does not mean that someone won't buy it for $200B tomorrow.

sass_muffin 4y ago

The thing is I don't think it is bold at all. Housing being overvalued seems perfectly obvious consequence of negative or near-zero interest rates. One side effect of those policies is that the mortgage rates were artificially lowered. A lot of people buying houses unfortunately don't really look at aggregate home ownership cost and focus (incorrectly) on monthly payments. So, because they can afford the monthly payment, they think they can afford the house. This of course works works until the music stops.