On August 28, I addressed the question “How Big is the Housing Bubble”. Here’s another take based on Hourly Wages, Rent, and the CPI
Home prices as measured by Case-Shiller repeat sales of the same home have surged vs average hourly earnings, the CPI, and rent.
Chart Notes
- Average hourly earnings are for production and nonsupervisory workers, not all workers. The data series for all workers does not go back far enough.
- The most recent Case-Shiller data is for May 2023. The other numbers are through July.
- Case-Shiller measure repeat sales of the same home over time. It is the most accurate measure because median and average prices do not factor amenities, the number of rooms, or quality of construction.
For at least 12 years, Case-Shiller, rent, average hourly earnings, and the CPI all rose together. Home prices then disconnected compared to everything else.
On August 28. I asked How Big is the Housing Bubble?
Based on Real Disposable Income, I calculated home prices were about 80 percent too high. Real means adjusted for inflation, and disposable means after tax. I used that methodology because for at least 12 years, home prices and real incomes rose together.
There are a couple of problems with my previous calculation. The first is that disposable income is not the best metric for comparison purposes. It includes food stamps, Social Security, Medicare, Medicaid, as well as interest, dividends, and rental income.
The average person does not collect rent, nor does the average person collect Social Security or have much dividend or interest income.
The second problem is that I compared real incomes to nominal home prices. This post compares nominal home prices vs nominal measures of hourly earnings, rent, and the CPI.
May 2006 Bubble Numbers
- Case-Shiller Housing Index: 185
- Average Hourly Income Index: 121
- CPI Index: 119
- Rent Index: 124
May 2006 Case-Shiller Percentage Above Hourly Income, CPI, and Rent Indexes
- Hourly Income: 52.9 Percent
- CPI: 55.5 Percent
- Rent: 49.2 percent
Current Bubble Numbers
- Case-Shiller Housing Index: 305
- Average Hourly Income Index: 211
- CPI Index: 180
- Rent Index: 221
Current Case-Shiller Percentage Above Hourly Income, CPI, and Rent
- Average Hourly Income Index: 44.5 Percent
- CPI: 69.4 percent
- Rent: 38.0 percent
Bubble Comparison Range
- May 2006: 49.2 percent to 52.9 percent
- Current: 38.0 percent to 69.4 percent
Price above rent is a flawed justification, but it does help explain the recent bubble. Rent was rising so fast that it pushed many into buying a house they are now tied to.
Importantly, Case-Shiller only includes the base house price. It does not factor in property taxes or insurance.
Home prices are now 69.4 percent more than where they would be if they rose at the same rate as the CPI. They are 44.5 percent above hourly income.
In May of 2006, home prices were 55.5 percent above the CPI index and 52.9 percent above hourly income.
Factor in property taxes and insurance into the current Case-Shiller price index and where are you?
Also consider student loan payments that will eat up 5 percent of income. For discussion, please see The Complicated Mess to Restart Student Loan Payments Is On Purpose
Finally, 61 Percent of US Workers Live Paycheck to Paycheck, 21 Percent Struggle With Bills
With mortgage rates above 7.0 percent, housing rates to be weak for a long time.
There is no doubt the housing prices are high relative to income earned. The real question is how this “bubble” will resolve itself. Will the wages grow or will house prices come down? Perhaps it’s a little of both. But, I’m betting on the former.
correct. pro r/e investors know the only way to really seek a market price is to pound the pavement and keep looking. houses are not like stocks. each one is different especially in old cities and towns. the large swaths of cardboard homes put up by the thousands in places like exurbia sunbelt is a different story. some towns, like charleston SC the homes trade more like antiques. invested and lived down there for a fantastic decade.
If the CPI catches up to Case-Shiller then I’m golden. If Case-Shiller drops to the CPI then it could break me.
Anyone have insight for how the two lines will meet?
Until we can determine how much Case-Shiller is due to flippers spending substantial money on renovations to make outdated homes livable, Case-Shiller is basically a mirage. The slowing sales of existing houses is almost certainly exacerbating this problem, as it is harder to match sales. I continue to be surprised Mish has not recognized this.
Case-Shiller is nowhere close to the most accurate measure. Most houses that repeat sales that quickly are flips, and have had a substantial amount of home renovation done to them. If a house sells for 400K, and then 500K six months later, did housing prices go up 25% in six months, or did someone spend close to 100K in renovations? It’s much more likely the latter happened.
correct. i spent a lifetime buying the most beat up 100 to 200 year old houses and fixing em up and renting them out for long periods of time.
This is not about the housing market. But I got a cold call from an auto dealer a few days ago, asking me if I was interested in buying a used car from them…
That’s a bit disturbing. How exactly did they get your phone number. Had you bought a car from them before or are they robo dialing? I’ve never heard of a legit auto dealer doing that.
Boise Idaho = Bubblicious
2015(Oct): Purchased house for $160,000
2022 (May): Zillow value, same house, at $520,000. $72,000 median Boise household income. 7.2 times median income.
2023 (Sep): Current Zillow value $425,000(trust me the house would sell for $500,000). $72,000 median Boise household income. 5.9 times median income.
$325,000 fundamental home value given 7.5% 30 year fixed mortgage rate which is about $2,125 monthly payment. 4.6 times median income.
Still 25% overvalued in Boise.
Here is the dilemma: The $72,000 income and subsequent 7.2x or 5.9x or 4.6x is irrelevant when dealing with other non-Idaho buyers. If you were to base those numbers against the median salary of $125k from San Jose, CA then those multipliers all change and are much lower. Throw in a few millionaires or billionaires that can pay cash and the multipliers change again.
The broader and more valid question is if Californians or other high income people / foreign buyers are coming back at some point. The fact that the multiplier has gone from 7.2x to 4.6x with the salary staying the same indicates external buyers are waning for now.
Housing is huge in Canada. I live near Waterloo, and higher interest rates have not seemed to dampen the turnover. Houses are lived in here.
There is no evident speculation. Massive in-migration is keeping the market tight. Creates curious anomolies – folks wait for new-builds to become
available. May 2023 market-data: Average price for detached home: $821,828. 788 Homes sold, a 10.9% decrease since May 2022. To an older
guy like me, who remembers prices 1/10th of these levels, it is pretty strange. I purchased a farm 22 years ago, and even then, I knew it was a good
plan. High house prices don’t help existing owners, since all it means is your property taxes go up. But with land, you can raise the rent to your
tenant farmers, which offers an inflation hedge (sort of, a little bit)… What is key, is to have some other property also, to pull the trigger on, if
prices get completely insane – which might happen. See, it is not really that the property is changing – it is that the value of the money is falling
each year… not too much each year – but enough that over 20 years of non-linear change, it really adds up. The trick is to have at least two
properties, so you can off-load one (the cottage, typically), and not get forced out of your primary residence, if prices continue to go into the
stratosphere. Also, recognize that real-estate cycles are long – 7 to 12 or more years, so one needs to be careful not to get stuck. (As Groucho
Marx said about Florida swamp property in the 1930’s: “You can get stucco on your new house! Oh boy, can you get stucko!”)
– Rus.
What I have witnessed personally in the Northeast, over the past 40+ years, has taught me quite a bit about RE & Prices. Never think you know where they will go, because nobody does. All RE is truly Local.
I have owned a condo, a townhouse, a ranch, and a colonial. I have rented, leased, owned to buy, and owned outright all sorts of them over those 40+ years.
I have had skip outs, renters of yours, threats, got caught in past legal issues from past property developers, owners and the like, had to pay back fees due to escrow being abused etc…
I have also made a lot of money, and a big chunk of it to total luck of timing, but by the Market and not me. What I do know however, is that right now there is little to no money and high interest rates are here to stay. That is in my experience a recipe for disaster. In that is foreclosures, deals falling through, Lending not getting approved, much less interest in home ownership, and the high fees and taxes involved just put the decision off to another time and place, but Not Now!
I also think with the Government, in some places I read, is now forcing people to have to rent their homes they own as rentals, to anyone they are mandated to do so to by Government edicts, will lesson the desire for people to enter the rental market with there homes.
Too many Taxes & Too many Rules to buy a home and rent it out for a small profit, and Way Too Many Risk!
Stay away from RE would be my advice, until the dust settles, and it isn’t even done falling to the ground yet, as they have much more to tear down first… IMO
So many ways to price an asset. I am an experienced commercial contractor and now building a house for my wife and I. It is a pretty standard 3 BR single floor with a full walkout basement. In a good neighborhood. I am using subcontractors who aren’t big, aren’t union but trying to make it in our world. I am buying materials from established wholesale establishments. I am very cost conscious. Overall cost, without any Real estate broker fees will end up at 19% under the current appraised value. Currently, this tells me that new replacement costs are not far removed from the current market (at least where i live). A correction can happen but then will this cause the real economy to shift and grind to a halt? A better question: “Who will take the wage hit?”. I guessing the entire market place will shift. Smaller homes, multi families in many of the current larger homes. I think remodels will suffer as well, as most material pricing won’t be changing making remodels unaffordable. Given the cost to produce, concrete, lumber, roofing, M&E products, etc,will probably NOT drop as it would cause entire large industries to dry up. Will wages fall according to a huge housing correction? I am guessing no. Just many, many less workers.
Maybe the gov’t will subsidize housing like they do EV’s to keep it pumped up. Wish i had a crystal ball.
Very smart analysis…to all of the other commenters here: great perspectives and many of them do not jive with my biases. BUT, thought-provoking.
This is turning out to be one of my Favorite Sites, Mish.
1) China’s RE construction added to the GDP, but when construction stopped the Chinese GDP dropped.
2) If SPX drops New housing construction 5+ units might drop from 1M units to 800K units, before 600K units, dragging the GDI with them.
3) NYC Commercial RE vacancies are 20%. SF 30%. 1T+ rollover is coming at 10%/12%.
4) The regional banks might force home owners to sell their houses, or to charge
the spread between 3% mortgage and 7%.
4. Nonsense. Unless they are on ARMs they can’t force them to sell. Pay your mortgage and you keep it at 3%. That’s going to keep a LOT of people in their homes…they won’t sell that many…the lack of inventory will keep prices higher than they should be.
death, divorce, dislocation, and downsizing.
disappointment, disaffection, depression,…
Housing is still booming in the Orlando, FL area. Single family homes, condos, and rental apartments going up like crazy. The below link is a short description of ‘EverBe’, which is a 3,300 home planned development a bit northeast of the airport. Pricing is not mentioned. Decent area which has road access to downtown, the airport, beaches, theme parks, etc. There are many more developments going on in Orange, Osceola, Seminole, and Lake counties.
Traffic is bad enough as it is and will only get worse.
https://www.youtube.com/watch?v=G-yvtLJo-1s
I don’t see any discussion of China. At a wedding last evening in a tony neighborhood near the beach in LA someone was discussing a Chinese buyer that just sold a house they’d bought about a decade ago letting it sit empty. They were griping about the Chinese investor making a cool million. I keep thinking 1989 and Japan’s crash and the resultant dive in prices here in LA. I think we are gonna see a bigger rerun of this with China. Although one anecdotal sale is not solid evidence I suspect the Chinese might be starting to sell their residential real estate holdings here
Japan got smoked like a cheap cigar. China will be too. America sold the Japanese People and Corporations whatever they were willing to buy. I think of the run up in Hawaii Real Estate in the 1980’s that crashed in the 90’s. Even in 2003 Hawaii Real Estate had not recovered to it’s peak price of a decade or more earlier.
If the Chinese person is trying to get money out of an increasingly Autocratic China…then NO. They will keep the real estate and try to get more $$ out of the country before they move for good. Japan didn’t have ONE person in charge of 1.3 Billion people who can take anything he wants at any time. China does…Uncle Xi can take anything he wants from you if you’re in China.
Housing increases GDP in the year it is built. All the lumber, plumbing, labor is paid then. After that the mortgage payments do not add to GDP, correct me if I am wrong. I read somewhere, maybe here that housing construction is the entire increase, decrease in GDP. Most other things like the military, government, car making, petroleum drilling, etc. don’t really change much year to year.
Housing sales are probably the most significant creator of money lent into existence. When those numbers are down it has a ripple affect. The US reminds me of a Resort Town where so much of the economy pivots on Real Estate.
Woodstock GA over the last five years has been a redhot housing market, and where I live. Havencroft, a 72 home subdivision, had 3 homes dried in next to the main entrance three months ago, then construction stopped. At that time, the sign said from $600K. And somehow with absolute zilch going on, the sign has been updated to $700K. One of the houses, 2,880 SF, is listed for $748K or $265 / SF with minimal yard (maybe 10 ft off the back of the rear patio to the property line).
One really has to wonder how much gross margin big builders are sitting on these days? Actually, one has to wonder how totally bonkers housing is right now? It’s absolutely nutsziod but apparently buidlers & buyers are going to hold out for the Fed’s pivot.
Good luck with that, people! Higher for longer has arrived with no recession in sight.
If a person moves from Cali, NYC, Chicago, etc. then those houses are stupid cheap, relative to what you were paying for a similar sized house. GA population is growing and will continue to grow. Not a problem with housing absorption in GA.
good stuff. i’m noticing big mark downs in working and lower working class hoods in 3 cities i have invested in r/e over past decades. makes sense. the inflation at grocery stores……..is hurting these folks.
I’ve been seeing more price drops than pending in the PNW… anywhere from 3 to 15%. That doesn’t count the ones where they delist it, drop the price, and relist it with a “new on market” banner.
The prices are high because all rich in the world want an american house, plus investment companies laundering money from oligarchs and tirans.
The FED and the US citizens are not relevant in real state market.
Bernanke “Financial Services Regulatory Act of 2006” was applied in Oct 2008.
The Fed raided bank accounts to save the big banks. In 2020, when the econ
was comatose, the Fed robbed the banks, paid the unemployed, transferred
wealth to the middle class and the poor… The money was spent, almost gone.
Bidenomic is fully committed to bootstrap the economy, to collect votes in
swing states, piling more debt.
1) Colorado Springs housing boom continues relentlessly.
2) How much of the demand is from illegals and Chinese money laundering?
3) We don’t seem anywhere close to a tipping point with interest rates and prices.
What a crook. I’ve heard housing prices were too high since the 80’s. The prices go up and down but the trend has been consistently higher. All prices and costs are up. It’s doubtful that they will go down as inflation isn’t going away.
Also, a house is a home – somewhere to live and raise a family. It’s not an investment like a security. Enjoy your home. It’s likely an expense that will lead to a more fulfilled life.
Prices of houses have been excessive since William McChesney Martin Jr. re-established stair-step case functioning (and cascading), interest rate pegs (like during WWII), thereby abandoned the FOMC’s net free, or net borrowed, reserve targeting position approach in favor of the Federal Funds “bracket racket”.
I.e., the Fed once again, began targeting interest rates and accommodating the banksters and their customers whenever the banks saw an advantage in expanding loans, thereby usurping the Fed’s “open market power” (in 1955 rhetoric, refilling the “punch-bowl”, coinciding with the rise in chronic monetary inflation and in anticipated inflation and stagflation).
We should have learned the falsity of that assumption in the Dec. 1941-Mar. 1951 period. That was what the Treas. – Fed. Res. Accord of Mar. 1951 was all about.
The effect of tying open market policy to a fed Funds rate is to supply additional (and excessive, & costless legal reserves) to the banking system when loan demand increases.
Since the member banks (when reserves were binding), operated without any excess reserves of significance (beginning in 1942), the banks had to acquire additional reserves, to support the expansion of deposits, resulting from their loan expansion.
I guess you didn’t live in the late ’80s or ’90s consistently higher? Holy shit where I live in New England the bottom completely fell out, 1930s style in The early ’90s. Reaganomics mmm. So many savings and loans failed and mortgages were flushed and buildings were sold at auction for $0 almost literally. It started in Texas but it made it all the way up to New England eventually. Where were you? Real estate always goes up in value hm. It did come back with the vengeance that’s for sure
As you get older you’ll sometimes see a repeat of events that makes predicting the future a bit easier. Nearing 70 I’ve seen a housing boom in the late 70’s, late 80’s, one from 1996-2006 and now the most recent boom from around 2014 to the present. In each one housing prices raced ahead of incomes, there was a tightening of interest rates, followed by a recession. This has happened every single time. This time probably won’t be different. If there is a recession and a flattening of income, housing prices will fall. If you’re going to bet, bet in that direction. Mish is far more likely to be right about this than not. I wouldn’t buy property unless it was in a local housing market that is priced for a weak economy. You’d currently be better off renting for at least 3 years if you are in a bubble market like the California Bay Area.
…but over the last 50 years, each one has got bigger… and the issue started in around 1971, and oscillated as a divergetn phugoid until 2021. 2022 was the beginning of the stall, and cashing out, and since January 1st 2023, it’s been all slow tailspin.
1) Larry Fink might change the tight supply, because new privately owned housing
units under construction 5+ units reached an all time high @ 986K, subsidized
by the gov.
2) How big the bubble doesn’t matter. How far the housing market will fall matters
most. Once the RE market deflates buyers will wait for lower prices.
3) C/S dbl tops : there is a line coming from 1995 to 2011 lows, parallel from 2006 high. These lines might be reach/breach.
The Fed is a blunt instrument that will always have a confirmation bias in favor of Fed members, mainly banks.
It scares the sh~t out of me that almost no-one is discussing ways to increase supply, ways to encourage more home building to increase housing supply and get prices down organically, the right way.
Raising rates when we were ZIRP was necessary, but continuing to raise rates to spawn disinflation in home prices is a disaster in the making, housing is a necessity, most single home buyers aren’t speculating, they just want a home.
Raising rates at this point is overkill, JOLTs is showing past rate increases are working, and those effects are residual…we’ll continue seeing the decline for months, maybe years.
For food inflation, the problem is that 4 meat producers account for upwards of 85% of the market – Cattle ranchers have reached a point of disgust and may have a solution to getting around the price fixing.
Google this term – “Ranchers want to take on the top beef sellers by starting their own meat plants”
I know Mish isn’t a big fan of the Fed, I’ve always defended the need for the Fed, but if this continues I may join the “Abolish the Fed” crowd, currently the Fed and government are blind to supply-side solutions and I’m getting sickened at the stupidity.
They’re intentionally trashing a great economy, possibly to the benefit of the “elites” who wield the most influence.
.
.
The economy was doing great like a person feels great with a snoot full of cocaine. Eventually you run out of coke though…
The original mandate of the fed was to provide liquidity in the face of mass panic. They would take assests from banks and lend them money to cover a bank run for example. The other bullshit that they been tasked to do has distorted and damaged the economic well being of our country. They have enabled deficit spending to the point of oblivion. This is why were in the mess were in. The original intent of having the fed was a good idea in my opinion. It evolved into something bad.
Providing liquidity during GFC was a failure, and didn’t stop the panic. Taking government stakes in every major industry stopped the bleeding – at least in the capitalist USA.
Go figure.
I think what they did was probably not their original mandate had dictated but they were in panic mode and did whatever it took. I am not sure what the correct response should have been at that point but things no doubt in retrospect should have been handled differently.
It’s kind of like a shield behind which banks can hide, and a cloak that conceals the reality of the bond markets.
All very Wizard of Oz really.
Yup.
Too much is never enough!
Bernanke conducted the most contractionary money policy since the GD. Powell has done just the opposite. Powell just flooded the economy with O/N RRP money.
Most of the reduction in reverse repo monies is going directly into buying all this final $400B in FY 2023 deficit spending. Without that RRPO sitting on the sidelines, does anyone have any idea where yields would be today?
How about a lot higher than they are now. And there’s still $1.6T in RRPO monies to be eliminated which will easily take two years, right when the new QE will spin up and create more future, fake demand for treasuries.
The Fed literally clicked trillions of dollars into existence which is now being used to suppress yields with fake demand. Anyone who thinks QE has ended is just absolutely crazy.
The award rate on O/N RRPs is 5.30% for $1,574.065 on 9/1/23. The rate on 3mo T-bills is higher. Thus, funds have come out of the O/N RRP.
There’s been a $734b drawdown since 4/24. That’s not a liability swap (removing cash from the FED turns outside money into inside money). If that’s what it takes to fund the Treasury’s tsunami, then interest rates would have risen further without that funding source?
https://www.newyorkfed.org/markets/rrp_faq.html
FAQs: Reverse Repurchase Agreement Operations
July 26, 2023
“Of course, if the buyer of a reverse repo or a security sold by the Fed is a nonbank and pays for the purchase using its bank account, the money supply is directly affected.” – Chicago FED’s Modern Money Mechanics
“The Fed Indirectly Shrinks the Money Supply”
http://www.wsj.com/articles/fed-money-supply-inflation-reverse-repo-11628288902
The FED doesn’t do anything without the approval the the U.S. Congress. Who has your wallet?
Price above rent is a flawed justification, but it does help explain the recent bubble. Rent was rising so fast that it pushed many into buying a house they are now tied to.
The thing is there are really only two way to value an asset.
1. The cost to produce an asset and then adding some type of margin for profit.
2. The amount of discounted cash flow the asset can produce over time.
A house is often thought of as a home but the truth is that home is producing cash flow for someone. If I buy a house to rent out, it is cash flowing for me. If I buy a house with a mortgage, it is cash flowing for the bank that owns the mortgage. A fully paid off house cash flows for the insurance company and property tax entity.
If we start using indexes to determine what the price for a house should be why not do it for airline tickets, orange juice or any other product or service? The index tells us nothing about supply type, location, cost and the same for demand.
I would also offer a possible 3rd option to measure the vaue of an asset and that is its inflation adjusted value. If an ounce of gold was worth $800 in 1980 it should be worth $3000 today based on inflation adjustments. So too should a house or more reasonably, the land it sits on, adjust with inflation.
I think telling people that housing is 40% over valued is giving false hope to lots of people that are desperate to buy a house right now. Yes, housing is over valued but I don’t think its 40% over valued on average. Perhaps if we enter a great depression, prices will drop 40% but I think we’ve already seen quite a correction in some markets like Austin, TX and San Francisco, CA.
The real problem with real estate is many people want to live in certain regions. There are plenty of houses in Detroit for $1 that no one wants and few in places like California that people can afford. I will add that with work-from-home here to stay it will continue to change the real estate market like no one expects.
Right now, the best thing to do is simply buy T-bills and earn 5.3% or more and wait till a new price discovery mechanism forms in real estate.
There are 3 billion more people than there were in 1980… that has to have an effect.
There is even more to it. In 1980, AirBnB didn’t exist, people weren’t buying houses to become short term rentals. The same for VRBO and others.
The long term rental market has also exploded.
Hedge funds buying real estate also exploded.
International home buyers have also exploded.
The home flipper home buyer has exploded.
The FIRE movement has exploded. Many buy real estate.
https://en.wikipedia.org/wiki/FIRE_movement
And now work-from-home is changing the real estate market again and who knows what else will happen over the next 5 or 10 years. There is exponential growth in the “digital nomad” worker that moves and rents or buys property periodically.
But people keep using their 1960 economic playbooks to do analysis that fails horribly over and over again. At some point “it is different” than last time.
Nope… if things don’t go the way I want them to, it has to be a CONSPIRACY!
Most of that excess demand was created by our all knowing govt. With the fed suppressing interest rates the lowest in recorded history got the ball rolling and where it winds up will be very interesting.
That’s one way to look at it but the government doesn’t hold a gun to anyone’s head and makes them buy a house. There have been real estate bubbles in Australia, Canada, most of Europe and many other places around the world. Neither the Fed nor US control those housing markets.
The truth is the real culprit is human greed and most people don’t want to look in the mirror and take responsibility, much easier to blame the Fed or Biden or banks or someone else.
These things that have “exploded” were a direct and predictable outgrowth of twenty years of free money, a central bank continually cutting interest rates below the level of inflation to create asset bubbles and fake growth. That period has ended. If the system breaks due to returning interest rates to historic norms it will have to rebuild itself without more free money. Inflation destroys economies and countries faster than debt based businesses failing.
Are you taking into consideration the 40% excess deaths?
You are not really talking about houses, but about financial contracts…
A rental agreement is a financial contract… a parasitic service; a mortgage loan agreement is a financial contract… a parasitic service. The asset could be anything.
I too am concerned about fostering an unwarranted hope of a huge correction in housing prices. We have, for years now, debased our currency combined with population increases materials costs and labor costs all rising. No one is going back to $10.00/hr wages. New modern construction must be done with 2 X 6 with very robust HVOC systems, triple pane windows etc. 600 K is just the cost basis of a 2800 sq ft house. No commissions, profits or lot value. Quit dreaming that such a home is going to correct to $300 K and start pricing out what these things really cost.
2800 sq ft! This is now bubble territory.
Houses do not cost $600k. Minimum wage workers have been making them for centuries from dried mud and lumber and whatever materials are available. Securitization of debt, reptile brain marketing and a commission based sales system is what drove costs of a simple goods to exorbitant levels. It is true that we need to stop letting kb homes lobbies write building codes but materials and construction are not huge expenses.
I’ve never seen more advertisements communicating: “We Buy Houses”.
Then you weren’t alive in 2005 or 2006. PLENTY of We Buy Houses for the entire early part of that decade.
The Mother of all Bubbles.
“The Mother of all Bubbles.”
I’ll pick Canada as a Bigger Mother of all Bubbles, another rate hike expected next week. Unlike in the US, mortages are generally at 5 year terms or less.
https://www.bnnbloomberg.ca/canada-likely-sitting-on-the-largest-housing-bubble-of-all-time-strategist-1.1962134
“The Canadian housing market is at high risk of unravelling, according to one expert.
The level of debt that Canadians have taken on in comparison to their incomes has put many in a precarious position should mortgage rates continue to rise — which is likely, Phillip Colmar, partner at Global Strategist at MRB Partners, told BNN Bloomberg in an interview on Tuesday.
“Canada is probably sitting on the largest housing bubble of all time,” he warned.
Colmar argued that the inflated home prices in Canada are a result of two decades’ worth of easy money supplied by the Bank of Canada’s monetary policy for numerous reasons. At the present moment, he sees risk in mortgage rates climbing as Canadian bond yields are dragged up, particularly at a time when debt-to-income ratios are sky high. ”
“The worst part for a housing bubble is when you have [a] credit bubble underneath it,” Colmar warned.
“The amount of Canadian leverage into the system versus incomes is pretty astronomical — and we’ve seen debt servicing going up dramatically.”
“… inflated home prices in Canada are a result of two decades’ worth of easy money supplied by the Bank of Canada’s monetary policy for numerous reasons.”
I know the reason: the system is broken and cannot be fixed without a crash. But, but…the children.
This particular batch of children was sold out 20 years ago.
Canada is the Comadre of all housing bubbles.
As crazy as house prices and interest rates are, this winter will be the best time to buy a house in the next 5 years.
When the Fed inevitably lowers interest rates in the next year or so, prices will explode due to the pent up demand.
IF the fed lowers interest rates there won’t be a significant drop. Even if they dropped it 1-2% the interest rates would still be too high for the average borrower (5-6%).
You are using the word INEVITABLE. This means ABSOLUTELY that the Fed will lower.
My question: would you bet, say $25,000, to back that up? If so, then I will share my Paypal Account information with you and likewise, I would ask you to do so and then we will set up an Escrow account reserve after we BOTH prove that we have $25,000 to bet.
Are you on?
I’d like a piece of that action…
Over what time horizon? Rates WILL inevitably decline (and they will inevitably go up again, too…and each will occur numerous times in the next 50 years…what is unknown is when each ).
You have seen the futures on Fed Funds for next spring, right?
“pent up demand” – the favourite phrase of the marketing man pushing FOMO…
What is “demand” really? It’s not “wanting” something, as in the French “demander”, it’s the relative attraction of a price in comparison to other options, rather like the slope towards a bath plughole.
To extend that visual analogy, your “pent up” notion, is that all the buyers are like the water in the bath, and there is a variable diameter plughole is the interest rate; and you suppose that as soon as the plughole diameter is increased by lowering interest rates, the water of all those buyers will be able to flow through the hole faster.
What happens then, when you put a waterproof cylinder, like a waterwall, around the plughole, but with little variable sized waterproof valves around it in random places – the mortgage-lending banks… this is the ability to get a mortgage loan… what happens then, is that it doesn’t matter what the diameter of the plughole is, the only water that can get through to trickle down it, via what is let in by those little valves.
As it stands, most of those little valves are shutting or getting smaller, or clogged up with slime of bad debt… yeah, that’s the other part of this little analogy, the slime in the water – the debt… it tends to clog up holes, and may even block them up permanently.
The global debt (i.e.: “slime”) crisis is so big, that it’s like a pond covered in it, and eutrophying underneath it such that businesses can’t grow. Eventually, there’s no amount of manipulations of the system that can work, and the whole system needs cleaning or it breaks…. cleaning means letting bad debts defauilt and go bust, no matter how big they are.
You’re all wet.
Best economic housing PRICE forecast I have seen – one which recognizes interest rates, the supply problem and the lock-in of older homes – says 5% decline over two years. He says most demand has shifted to new construction.