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I really think we're going to see a classic bubble blowoff here in the next year. Home values were crazy relative to median incomes from a historical perspecti

I really think we're going to see a classic bubble blowoff here in the next year. Home values were crazy relative to median incomes from a historical perspective, and the number of investors using "free" loans to buy homes was out of control. As the market turns, there's going to be a run for the exits as it turns out that rents don't always go up, and as people realize it may take 10+ years for home values to return to where they were last year. All in all, I'm getting big 2008 vibes with the bank failures and now the housing market turning. By the fall we might be right back into a similar crisis too, the banks are holding billions in assets that are no longer worth what they claim they're worth.

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notch898a 4y ago
Sell it and do what with your dollars though? USD is in a free fall with massive inflation and equities are in turmoil. Furthermore the fed is signalling the end of raising rates so bonds aren't going to do you much better. If I had property I'd be holding onto those sweet sweet negative real interest mortgages for dear life.
epistasis 4y ago
At the same time, we have a historic undersupply of homes and have been building less than we need to for a very long time. So in a few markets with oversupply, there might be a bubble pop, but in many areas with strong economies there's not much to pop. Vacation homes or other areas with highly variable supply seem more likely to pop, but in the economic power houses of the economy we are still undersupplied and this it self has been a huge limiter on national GDP, by denying people access to higher paying jobs.
- dawnerd 4y ago
  Bunch of new homes being built here in socal and the developers have doubled the prices since beginning of the pandemic. As long as the developers can hold on to empty units longer I can see them holding out in hopes people cave and pay. Seems to be working.
  - epistasis 4y ago
    What you call a "bunch" is far less than historical norms. We have been in a crunch for so long that even small amounts of building seem like "a bunch" but it's nowhere near building enough for what people need. While this has been going on for longer in California, and the need is far deeper than most areas, it is a national problem now too.
  - HDThoreaun 4y ago
    > Bunch of new homes being built here in socal Not even close to enough. California is a good million units short of where it needs to be. Socal needs to convert the endless supply of ranch houses into 2 and 3 flats.
    - epistasis 4y ago
      External consultants (McKinsey, I think?) estimated 3.5 million homes short, and Gavin Newsom campaigned on building that much. He's going to fall far far short of this goal, because he ignored it for the first years of his governorship, and is only making small moves now, but people trying to accomplish this goal are glad that he's starting to make these small moves. However, any change will take multiple years to start having effect, and at least 5-10 years to actually solve, so even if he does all the right stuff, Newsom won't be able to say he solved until he's out of office.
bradleyjg 4y ago
We saw last time that there’s no political appetite to allow home prices to ever fall on a nominal basis. The politicians went about inflating a new, even larger, bubble ASAP. Why do you expect this time to be different?
- cloverich 4y ago
  Because inflation is having a real impact on the average Joe.
- vanilla_nut 4y ago
  If basic homes become unattainable for the working class and the middle class -- teachers, nurses, construction workers, etc. -- we either have to raise wages so folks can afford the new prices, or drop house prices back to a reasonable level. I guess it's a race between "rent-seeking folks who own investment properties" and "people who actually want to live and work in a community." Should be an interesting battle -- while the rent-seekers surely have the most lobbying power, literally everyone needs a home.
  - notch898a 4y ago
    We could just create "mortgage perpetuals" where you perpetually pay an interest on the land value without ever paying the principle on the land itself. For the improved structures above the mortgage period could be the expected life of the structure itself. There's room to squeeze people a lot further than they're already squeezed.
    - vanilla_nut 4y ago
      Isn't that just renting with all the maintenance downsides of ownership? You should consider a career writing dystopian science fiction. This is pretty brilliant material.
      - notch898a 4y ago
        Think of it as property tax except the taxes pass directly to the barons at the top rather than to a politician and then the barons at the top.
lxm 4y ago
Agree with the sentiment, not sure about the timing. Apartment REITs are already 30%ish below their 52w highs https://www.google.com/finance/quote/RESI:NYSEARCA?window=1Y&comparison=NYSEARCA%3AREZ%2CBATS%3AHAUS https://www.google.com/finance/quote/RESI:NYSEARCA?window=1Y... so it seems like the market has anticipated that move and priced their yields in line with risk-free interest one can get on Treasuries.
rednerrus 4y ago
The problem is that 2008s slow down created a major housing shortage as we missed 2.5 years of building as we sorted out the financial crisis. We haven't been able to get caught up.
JustLurking2022 4y ago
It's tempting to think so but there are a couple huge difference to 2008. For one, all the loans from before mid-2022 are quite affordable, so owners generally have little incentive to sell, limiting supply. Second, the critical aspect making 2008 so bad was the contagion effect throughout financial markets - MBS were so pervasive that suddenly no one knew if their bank's assets were worth anything at all. Uncertainty is the worst for financial markets - they tend to assume the worst which can lead to credit just seizing up. That was a trigger for some of the worst of the economic damage. Despite the recent turbulence for banks, the situation isn't comparable. There banks were holding some of the most widely traded assets, generally considered extremely safe - they simply had too long of a time horizon (which is still poor risk management). No one is worrying that the banks' assets might actually be totally worthless and, with the support signals coming from the Fed and FDIC, it's doubtful the crisis of confidence blows up the way 2008 did.
mhuffman 4y ago
>there's going to be a run for the exits as it turns out that rents don't always go up No, but they tend to stay up when they get there. I have only seen them go down once in my life in a town where the major employer left and about 1/4 of the town was economically impacted. It is not easy for many people to come up with a down-payment for a house. I know that there are programs to help people, but generally, renting is the only option for many people no matter how much the price of houses goes down (within reason). So people with money can just snap up cheap houses if the prices fall or sit on their money for now and collect rents if interest rates skyrocket.
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notch898a 4y ago

Sell it and do what with your dollars though? USD is in a free fall with massive inflation and equities are in turmoil. Furthermore the fed is signalling the end of raising rates so bonds aren't going to do you much better. If I had property I'd be holding onto those sweet sweet negative real interest mortgages for dear life.

epistasis 4y ago

At the same time, we have a historic undersupply of homes and have been building less than we need to for a very long time. So in a few markets with oversupply, there might be a bubble pop, but in many areas with strong economies there's not much to pop. Vacation homes or other areas with highly variable supply seem more likely to pop, but in the economic power houses of the economy we are still undersupplied and this it self has been a huge limiter on national GDP, by denying people access to higher paying jobs.

dawnerd 4y ago
Bunch of new homes being built here in socal and the developers have doubled the prices since beginning of the pandemic. As long as the developers can hold on to empty units longer I can see them holding out in hopes people cave and pay. Seems to be working.
- epistasis 4y ago
  What you call a "bunch" is far less than historical norms. We have been in a crunch for so long that even small amounts of building seem like "a bunch" but it's nowhere near building enough for what people need. While this has been going on for longer in California, and the need is far deeper than most areas, it is a national problem now too.
- HDThoreaun 4y ago
  > Bunch of new homes being built here in socal Not even close to enough. California is a good million units short of where it needs to be. Socal needs to convert the endless supply of ranch houses into 2 and 3 flats.
  - epistasis 4y ago
    External consultants (McKinsey, I think?) estimated 3.5 million homes short, and Gavin Newsom campaigned on building that much. He's going to fall far far short of this goal, because he ignored it for the first years of his governorship, and is only making small moves now, but people trying to accomplish this goal are glad that he's starting to make these small moves. However, any change will take multiple years to start having effect, and at least 5-10 years to actually solve, so even if he does all the right stuff, Newsom won't be able to say he solved until he's out of office.

bradleyjg 4y ago

We saw last time that there’s no political appetite to allow home prices to ever fall on a nominal basis. The politicians went about inflating a new, even larger, bubble ASAP. Why do you expect this time to be different?

cloverich 4y ago
Because inflation is having a real impact on the average Joe.
vanilla_nut 4y ago
If basic homes become unattainable for the working class and the middle class -- teachers, nurses, construction workers, etc. -- we either have to raise wages so folks can afford the new prices, or drop house prices back to a reasonable level. I guess it's a race between "rent-seeking folks who own investment properties" and "people who actually want to live and work in a community." Should be an interesting battle -- while the rent-seekers surely have the most lobbying power, literally everyone needs a home.
- notch898a 4y ago
  We could just create "mortgage perpetuals" where you perpetually pay an interest on the land value without ever paying the principle on the land itself. For the improved structures above the mortgage period could be the expected life of the structure itself. There's room to squeeze people a lot further than they're already squeezed.
  - vanilla_nut 4y ago
    Isn't that just renting with all the maintenance downsides of ownership? You should consider a career writing dystopian science fiction. This is pretty brilliant material.
    - notch898a 4y ago
      Think of it as property tax except the taxes pass directly to the barons at the top rather than to a politician and then the barons at the top.

lxm 4y ago

Agree with the sentiment, not sure about the timing. Apartment REITs are already 30%ish below their 52w highs https://www.google.com/finance/quote/RESI:NYSEARCA?window=1Y&comparison=NYSEARCA%3AREZ%2CBATS%3AHAUS https://www.google.com/finance/quote/RESI:NYSEARCA?window=1Y... so it seems like the market has anticipated that move and priced their yields in line with risk-free interest one can get on Treasuries.

rednerrus 4y ago

The problem is that 2008s slow down created a major housing shortage as we missed 2.5 years of building as we sorted out the financial crisis. We haven't been able to get caught up.

JustLurking2022 4y ago

It's tempting to think so but there are a couple huge difference to 2008. For one, all the loans from before mid-2022 are quite affordable, so owners generally have little incentive to sell, limiting supply. Second, the critical aspect making 2008 so bad was the contagion effect throughout financial markets - MBS were so pervasive that suddenly no one knew if their bank's assets were worth anything at all. Uncertainty is the worst for financial markets - they tend to assume the worst which can lead to credit just seizing up. That was a trigger for some of the worst of the economic damage. Despite the recent turbulence for banks, the situation isn't comparable. There banks were holding some of the most widely traded assets, generally considered extremely safe - they simply had too long of a time horizon (which is still poor risk management). No one is worrying that the banks' assets might actually be totally worthless and, with the support signals coming from the Fed and FDIC, it's doubtful the crisis of confidence blows up the way 2008 did.

mhuffman 4y ago

>there's going to be a run for the exits as it turns out that rents don't always go up No, but they tend to stay up when they get there. I have only seen them go down once in my life in a town where the major employer left and about 1/4 of the town was economically impacted. It is not easy for many people to come up with a down-payment for a house. I know that there are programs to help people, but generally, renting is the only option for many people no matter how much the price of houses goes down (within reason). So people with money can just snap up cheap houses if the prices fall or sit on their money for now and collect rents if interest rates skyrocket.

deleted 4y ago

[deleted]