6 ms·

All around the western world, money printing to prop up the house price bubble is finally reaching breaking point, with housing costs completely decoupling from

by hanoz 3y ago

All around the western world, money printing to prop up the house price bubble is finally reaching breaking point, with housing costs completely decoupling from fundamentals, and inflation breaching the banks and flooding into consumer pricing.

govolckurself 3y ago
What? No, there simply isn't enough housing. Prices don't always go up simply because of an increase in the money supply (which is also something you can measure).
- exclusiv 3y ago
  Exactly. Not enough supply. Build costs exorbitant. There will not be some magical supply out of nowhere nor a big drop in build costs. So thus prices, IMO, in most major metros are connected to fundamentals. If housing was not connected to fundamentals, home sale prices would have been exposed and taken a nose dive with the movement in interest rates. People aren't getting any easy money. They are still buying.
  - dragonwriter 3y ago
    > If housing was not connected to fundamentals, home sale prices would have been exposed and taken a nose dive with the movement in interest rates. But prices have fallen (and even more, volume, has fallen, whether because there are fewer buyers are because sellers are deferring because of the fall in prices). This is clear in national figures, and hot metros that at some other times have defied downward real estate trends also show it.
    - exclusiv 3y ago
      If you mean they have fallen from the peak of May 2022 you would be right. But that's not the story. And that has no bearing on fundamentals. Just because there has been a price movement doesn't mean it got disconnected from fundamentals. Price came off peak? Ok. Well cost of money also ramped up disproportionately to that. Prices have been resilient and when rates go the other way, they will go even higher IMO. Prices are still, on median, 100k higher NOW over pre-pandemic. That's 33% more in just a few years. Sale to list prices is still at 98.9%. Off the peak of 103.1% but money was WAY cheaper then. March 2020 median home price was $300k. March 2023.... $400k. [1] March 2020 loans were about 3.5%. March 2023.... 6.5%. It costs a shit ton more to service a loan now, inventory is down, yet prices are only 30k off the peak. Is everyone buying a house with these interest rates a moron? No they aren't. Are banks approving risky loans now? No they aren't. Volume is irrelevant when we are talking about fundamentals. Sellers are a key part of that. If they pull inventory due to the numerous factors in the housing market and the economy, then the prices are what they are. There is no shadowy hand now keeping home prices higher over their fundamentals, nor a shadowy hand telling the homeowners to not list their home. This is the market at work; and its been resilient with what is going on. And to my point, if you couple supply and demand with the state of affairs and you look at build cost you'll see that current inventory is priced at or better than any fundamental analysis would suggest. And not overpriced. I ONLY buy on build/replacement cost. Sure some areas went crazy, but if you are disconnected from build costs, you are rolling the dice and I highly recommend you don't do that unless you love the house so much you don't care what happens. But by and large, housing prices are NOT disconnected from replacement costs. They are still cheaper. If you can buy a "used" house for 300k. Or build a new house for 350k (+6-12 months of your time and carrying costs on the housing you are currently at and potential unexpected costs), then where is the disconnect? I don't see it. If housing WAS disconnected from the fundamentals, then you'd simply see a shit ton more building going on and with more inventory and less buyers and affordability due to interest rate hikes, price would drop a lot. That's not the case. There has not been a meaningful price drop with the interest rate hikes, we just have less buyers on average, and about 4% less on the sales price to list. People waiting on the sidelines in most markets aren't going to be happy as inflation keeps on trucking, build costs are out of control, and inventory is low. Rent will go up. "Year-over-year rental price growth will rise from 5.8%, as of June 2022, to 8.4% as of May 2023, according to a Federal Reserve Bank of Dallas forecast that uses data from the federal government’s consumer price index" You used to be able to just stash cash and then when interest rates jack up you could get a real deal. No more. Housing is an inflation hedge and the market has been pumped up. When the pivot occurs and cheaper money returns because the asset owners would rather have inflation than deflation, the housing market will go even higher IMO. 30T debt and 180+T in unfunded liabilities along with a pissed off world that has gotten drunk off cheap USD leaves no choice but to print in overdrive. I won't be holding USD or more than retirement money in the stock market. I'll be primarily in RE and private companies. If you are big on stocks, you may still do ok - we've seen that we can print and not cause extreme inflation, by pushing dollars into equities. But I think that game will end as it's further exposed and money rotates out. [1] https://www.redfin.com/us-housing-market https://www.redfin.com/us-housing-market
exclusiv 3y ago
> housing costs completely decoupling from fundamentals, Not true in most markets. Compare to build/replacement costs. In a high inflation environment with 30+ trillion in national debt and 186 trillion in unfunded liabilities, I'll take my chances with hard assets that are connected to fundamentals like housing. They WILL pivot and print in overdrive. There is no way out at this point. And not just the US, the world cannot handle higher interest rates which causes more demand for the dollar. The entire world is jacked up on eurodollar debt that is not sustainable. And those with the assets will gladly choose inflation over deflation. "Inflation is transitory". "Banks are fine" We're led by morons, shills and thieves.
- pydry 3y ago
  >The entire world is jacked up on eurodollar debt that is not sustainable 10 years ago this was a far bigger deal as the western game was the only one in town. Nowadays nonaligned countries can pivot to the Russia/China axis and still get resources and manufactured goods.
  - exclusiv 3y ago
    Very few countries want to trade in the currencies of Russia or China. But that's besides my point. Getting resources and manufactured goods has nothing to do with my statement about sustainability. Debt to GDP of 338% is not sustainable [1]. It doesn't matter if countries can get resources and manufactured goods. That's like saying - well I have 3X my salary in debt but it's ok... I can buy goods on Amazon.... on more credit, with a higher rate... and still be fine. No you can't. There's about 20 trillion in US denominated debt / eurodollar debt [2] and 65 trillion in unrecorded debt overseas [2]. In order to service US denominated debt, you have to swap your currency to get USD. This is a major problem when you already need to keep printing to service your own unsustainable debt (> 300% debt to gdp), inflation rips on goods and materials you need and tax revenues drop in an economic downturn. When interest rates go up, it squeezes you. Everyone kept rolling debt over in a debt drunk binge fest for decades as it kept getting cheaper and they have been feeling major pain from it going the other way. [1] https://www.weforum.org/agenda/2023/02/global-debt-2022-and-other-economy-stories-february-2023/#:~:text=The%20ratio%20of%20global%20debt,points%20to%20250%25%20of%20GDP https://www.weforum.org/agenda/2023/02/global-debt-2022-and-.... [2] https://www.bruegel.org/comment/euro-dollar-parity-beyond-symbolism https://www.bruegel.org/comment/euro-dollar-parity-beyond-sy... [3] https://www.weforum.org/agenda/2023/01/65-trillion-debt-bank-financial-system-economic/ https://www.weforum.org/agenda/2023/01/65-trillion-debt-bank...

by hanoz 3y ago

govolckurself 3y ago

What? No, there simply isn't enough housing. Prices don't always go up simply because of an increase in the money supply (which is also something you can measure).

exclusiv 3y ago
Exactly. Not enough supply. Build costs exorbitant. There will not be some magical supply out of nowhere nor a big drop in build costs. So thus prices, IMO, in most major metros are connected to fundamentals. If housing was not connected to fundamentals, home sale prices would have been exposed and taken a nose dive with the movement in interest rates. People aren't getting any easy money. They are still buying.
- dragonwriter 3y ago
  > If housing was not connected to fundamentals, home sale prices would have been exposed and taken a nose dive with the movement in interest rates. But prices have fallen (and even more, volume, has fallen, whether because there are fewer buyers are because sellers are deferring because of the fall in prices). This is clear in national figures, and hot metros that at some other times have defied downward real estate trends also show it.
  - exclusiv 3y ago
    If you mean they have fallen from the peak of May 2022 you would be right. But that's not the story. And that has no bearing on fundamentals. Just because there has been a price movement doesn't mean it got disconnected from fundamentals. Price came off peak? Ok. Well cost of money also ramped up disproportionately to that. Prices have been resilient and when rates go the other way, they will go even higher IMO. Prices are still, on median, 100k higher NOW over pre-pandemic. That's 33% more in just a few years. Sale to list prices is still at 98.9%. Off the peak of 103.1% but money was WAY cheaper then. March 2020 median home price was $300k. March 2023.... $400k. [1] March 2020 loans were about 3.5%. March 2023.... 6.5%. It costs a shit ton more to service a loan now, inventory is down, yet prices are only 30k off the peak. Is everyone buying a house with these interest rates a moron? No they aren't. Are banks approving risky loans now? No they aren't. Volume is irrelevant when we are talking about fundamentals. Sellers are a key part of that. If they pull inventory due to the numerous factors in the housing market and the economy, then the prices are what they are. There is no shadowy hand now keeping home prices higher over their fundamentals, nor a shadowy hand telling the homeowners to not list their home. This is the market at work; and its been resilient with what is going on. And to my point, if you couple supply and demand with the state of affairs and you look at build cost you'll see that current inventory is priced at or better than any fundamental analysis would suggest. And not overpriced. I ONLY buy on build/replacement cost. Sure some areas went crazy, but if you are disconnected from build costs, you are rolling the dice and I highly recommend you don't do that unless you love the house so much you don't care what happens. But by and large, housing prices are NOT disconnected from replacement costs. They are still cheaper. If you can buy a "used" house for 300k. Or build a new house for 350k (+6-12 months of your time and carrying costs on the housing you are currently at and potential unexpected costs), then where is the disconnect? I don't see it. If housing WAS disconnected from the fundamentals, then you'd simply see a shit ton more building going on and with more inventory and less buyers and affordability due to interest rate hikes, price would drop a lot. That's not the case. There has not been a meaningful price drop with the interest rate hikes, we just have less buyers on average, and about 4% less on the sales price to list. People waiting on the sidelines in most markets aren't going to be happy as inflation keeps on trucking, build costs are out of control, and inventory is low. Rent will go up. "Year-over-year rental price growth will rise from 5.8%, as of June 2022, to 8.4% as of May 2023, according to a Federal Reserve Bank of Dallas forecast that uses data from the federal government’s consumer price index" You used to be able to just stash cash and then when interest rates jack up you could get a real deal. No more. Housing is an inflation hedge and the market has been pumped up. When the pivot occurs and cheaper money returns because the asset owners would rather have inflation than deflation, the housing market will go even higher IMO. 30T debt and 180+T in unfunded liabilities along with a pissed off world that has gotten drunk off cheap USD leaves no choice but to print in overdrive. I won't be holding USD or more than retirement money in the stock market. I'll be primarily in RE and private companies. If you are big on stocks, you may still do ok - we've seen that we can print and not cause extreme inflation, by pushing dollars into equities. But I think that game will end as it's further exposed and money rotates out. [1] https://www.redfin.com/us-housing-market https://www.redfin.com/us-housing-market

exclusiv 3y ago

> housing costs completely decoupling from fundamentals, Not true in most markets. Compare to build/replacement costs. In a high inflation environment with 30+ trillion in national debt and 186 trillion in unfunded liabilities, I'll take my chances with hard assets that are connected to fundamentals like housing. They WILL pivot and print in overdrive. There is no way out at this point. And not just the US, the world cannot handle higher interest rates which causes more demand for the dollar. The entire world is jacked up on eurodollar debt that is not sustainable. And those with the assets will gladly choose inflation over deflation. "Inflation is transitory". "Banks are fine" We're led by morons, shills and thieves.

pydry 3y ago
>The entire world is jacked up on eurodollar debt that is not sustainable 10 years ago this was a far bigger deal as the western game was the only one in town. Nowadays nonaligned countries can pivot to the Russia/China axis and still get resources and manufactured goods.
- exclusiv 3y ago
  Very few countries want to trade in the currencies of Russia or China. But that's besides my point. Getting resources and manufactured goods has nothing to do with my statement about sustainability. Debt to GDP of 338% is not sustainable [1]. It doesn't matter if countries can get resources and manufactured goods. That's like saying - well I have 3X my salary in debt but it's ok... I can buy goods on Amazon.... on more credit, with a higher rate... and still be fine. No you can't. There's about 20 trillion in US denominated debt / eurodollar debt [2] and 65 trillion in unrecorded debt overseas [2]. In order to service US denominated debt, you have to swap your currency to get USD. This is a major problem when you already need to keep printing to service your own unsustainable debt (> 300% debt to gdp), inflation rips on goods and materials you need and tax revenues drop in an economic downturn. When interest rates go up, it squeezes you. Everyone kept rolling debt over in a debt drunk binge fest for decades as it kept getting cheaper and they have been feeling major pain from it going the other way. [1] https://www.weforum.org/agenda/2023/02/global-debt-2022-and-other-economy-stories-february-2023/#:~:text=The%20ratio%20of%20global%20debt,points%20to%20250%25%20of%20GDP https://www.weforum.org/agenda/2023/02/global-debt-2022-and-.... [2] https://www.bruegel.org/comment/euro-dollar-parity-beyond-symbolism https://www.bruegel.org/comment/euro-dollar-parity-beyond-sy... [3] https://www.weforum.org/agenda/2023/01/65-trillion-debt-bank-financial-system-economic/ https://www.weforum.org/agenda/2023/01/65-trillion-debt-bank...