ECB sees rising risk that housing bubble will burst(reuters.com)
reuters.com
ECB sees rising risk that housing bubble will burst
https://www.reuters.com/article/ecb-economy-stability-idUSKBN2I20Q3
159 comments
Those quotes describe a taut rubber band that could easily be released in the next 1-2 years.
> With families building up savings during pandemic and increasingly working from home, demand for property is on the rise...
Return to office, taking deferred vacations, etc. winds down the savings.
> labour shortages, global supply chain bottlenecks
won't last forever.
So there's downside demand-side risk and upside supply-side risks, with identical underlying causal triggering conditions (end of pandemic). Oh, and how long can central banks hold off on rate increases?
The risk of a violent crash has less to do with the probability of a rapid post-pandemic renormalization and more to do with the tight causal links between the risks of upside supply and downside demand. Less like "crash will definitely happen" and more like "X_1, ..., X_n all have unknown but likely highly correlated probabilities, so if one happens they all happen and if you get X_1, ..., X_n all at once there'll definitely be a crash"
I think.
> With families building up savings during pandemic and increasingly working from home, demand for property is on the rise...
Return to office, taking deferred vacations, etc. winds down the savings.
> labour shortages, global supply chain bottlenecks
won't last forever.
So there's downside demand-side risk and upside supply-side risks, with identical underlying causal triggering conditions (end of pandemic). Oh, and how long can central banks hold off on rate increases?
The risk of a violent crash has less to do with the probability of a rapid post-pandemic renormalization and more to do with the tight causal links between the risks of upside supply and downside demand. Less like "crash will definitely happen" and more like "X_1, ..., X_n all have unknown but likely highly correlated probabilities, so if one happens they all happen and if you get X_1, ..., X_n all at once there'll definitely be a crash"
I think.
The only reason the bubble burst was due to overleverage.
Houses were only sold en masse due to a prescribed flowchart: borrower couldnt pay, bank takes house, bank doesnt want actual houses so bank sells house, bank already earned enough on interest to sell house at a loss, bank can also take losses and list property for lower to sell faster, bank found out it couldn't take losses.
This isnt happening right now. The overleverage isnt in real estate. Everyone is looking in the wrong direction just because price go up.
Houses were only sold en masse due to a prescribed flowchart: borrower couldnt pay, bank takes house, bank doesnt want actual houses so bank sells house, bank already earned enough on interest to sell house at a loss, bank can also take losses and list property for lower to sell faster, bank found out it couldn't take losses.
This isnt happening right now. The overleverage isnt in real estate. Everyone is looking in the wrong direction just because price go up.
Where is the overleverage, though?
Where is the overleveraging now?
Think about how many years over-building went on before the collapse in 2008.
There's a good chance that, in the coming years, labor and materials prices will fall such that builders will start construction on too many homes. But that's a while away. material prices are falling, but they are still elevated. And houses take a while to build -- four months minimum, nine+ more typical. So even if overbuilding started today, there's still a good year or so before that stuff comes on the market.
In these situations, I'm a big believer in contrarian outcomes. Because if a large number of people think some event will occur, then they act in a way which gives them the best outcome should that event occur. The popular trend right now is to speculate a housing collapse. Thus, I think most people are going to put off buying at "elevated" prices for a few years, until it becomes crystal clear that they were wrong.
My prediction: House prices will be like the stock market circa 2016. Everyone will be predicting a collapse "any time now" while prices soar at a crazy pace and continue to do so for a decade.
There's a good chance that, in the coming years, labor and materials prices will fall such that builders will start construction on too many homes. But that's a while away. material prices are falling, but they are still elevated. And houses take a while to build -- four months minimum, nine+ more typical. So even if overbuilding started today, there's still a good year or so before that stuff comes on the market.
In these situations, I'm a big believer in contrarian outcomes. Because if a large number of people think some event will occur, then they act in a way which gives them the best outcome should that event occur. The popular trend right now is to speculate a housing collapse. Thus, I think most people are going to put off buying at "elevated" prices for a few years, until it becomes crystal clear that they were wrong.
My prediction: House prices will be like the stock market circa 2016. Everyone will be predicting a collapse "any time now" while prices soar at a crazy pace and continue to do so for a decade.
I don't think you're wrong but I don't think you're right.
Housing starts aren't necessarily responding to demand, because yeah, nobody wants to over-build and contribute to a default. Plus there are other factors that impact housing starts in most high-cost areas (i.e. availability of land to build on.)
I don't see a pop, yet I'm not certain prices will soar. People will typically shop based on 'what they can afford' and that usually means monthly payment; as rates went low, it was easier to bump up the ask price; the best way to put it is, if rates drop from 4% to 3%, you can finance around 10% more money over 30y with the same overall monthly payment.
I do think there might be some 'bumps' in the road, but ironically, many of the people 'waiting' will probably end up pulling us out of the bumps (or, maybe, causing another surge.) I think overall the most likely scenario is we'll see some periods of paused growth or slight decline.
Worth throwing out there, at least in US the housing market typically cools down a bit over the winter, so take any news of decreases in volume with a grain of salt.
Housing starts aren't necessarily responding to demand, because yeah, nobody wants to over-build and contribute to a default. Plus there are other factors that impact housing starts in most high-cost areas (i.e. availability of land to build on.)
I don't see a pop, yet I'm not certain prices will soar. People will typically shop based on 'what they can afford' and that usually means monthly payment; as rates went low, it was easier to bump up the ask price; the best way to put it is, if rates drop from 4% to 3%, you can finance around 10% more money over 30y with the same overall monthly payment.
I do think there might be some 'bumps' in the road, but ironically, many of the people 'waiting' will probably end up pulling us out of the bumps (or, maybe, causing another surge.) I think overall the most likely scenario is we'll see some periods of paused growth or slight decline.
Worth throwing out there, at least in US the housing market typically cools down a bit over the winter, so take any news of decreases in volume with a grain of salt.
> And houses take a while to build -- four months minimum, nine+ more typical. So even if overbuilding started today, there's still a good year or so before that stuff comes on the market.
Tract builders target 100 days to complete a home from ground up. The permitting, zoning, and land acquisition is the slowest part, but once all of the paperwork is done, they can pump out entire neighborhoods in a couple years max.
Tract builders target 100 days to complete a home from ground up. The permitting, zoning, and land acquisition is the slowest part, but once all of the paperwork is done, they can pump out entire neighborhoods in a couple years max.
> The popular trend right now is to speculate a housing collapse.
Price action is sentiment. Words are hot air. People are NOT speculating on a housing collapse. Exactly the opposite.
Price action is sentiment. Words are hot air. People are NOT speculating on a housing collapse. Exactly the opposite.
I disagree.
Prices demonstrate the attitudes of people who are buying houses. I'm concerned with the attitudes of people who are not buying houses. Why aren't they buying houses? Because they think the are going to fall in the near future. Why do I think that? Because this is a popular sentiment expressed by normal people on social media.
Yes, it's wholly unscientific of me to use Reddit and Facebook as a barometer of society, but I'm not a professional economist, just another rando on the internet making bad predictions.
Prices demonstrate the attitudes of people who are buying houses. I'm concerned with the attitudes of people who are not buying houses. Why aren't they buying houses? Because they think the are going to fall in the near future. Why do I think that? Because this is a popular sentiment expressed by normal people on social media.
Yes, it's wholly unscientific of me to use Reddit and Facebook as a barometer of society, but I'm not a professional economist, just another rando on the internet making bad predictions.
> I'm concerned with the attitudes of people who are not buying houses.
That's fair.
> Why aren't they buying houses?
I think a lot of people are buying.
> Because they think the are going to fall in the near future.
One major reason people with massive hoards of cash aren't buy is uncertainty around WFH. "Where to buy? Depends. Let's see how this whole return to office thing goes..."
> Yes, it's wholly unscientific of me to use Reddit and Facebook as a barometer of society, but I'm not a professional economist, just another rando on the internet making bad predictions.
Aren't we all :)
That's fair.
> Why aren't they buying houses?
I think a lot of people are buying.
> Because they think the are going to fall in the near future.
One major reason people with massive hoards of cash aren't buy is uncertainty around WFH. "Where to buy? Depends. Let's see how this whole return to office thing goes..."
> Yes, it's wholly unscientific of me to use Reddit and Facebook as a barometer of society, but I'm not a professional economist, just another rando on the internet making bad predictions.
Aren't we all :)
> Why aren't they buying houses?
My experience is that there are a lot of people looking to buy a house, there's just no houses to buy. I bought a house earlier in the year and put an offer in the day it went on the market, and I was still only one of several offers they got that day. I also have a friend who's looking at houses right now and it seems to be basically the same, houses are getting multiple offers and selling within a few days of going on the market, and anything that doesn't sell that fast isn't worth buying.
The good question is probably "Why aren't people selling?", but I'm not sure that's actually the issue. Google suggests at least as many homes will sell this year as last year, which leads me to believe there must be more buyers than normal.
My experience is that there are a lot of people looking to buy a house, there's just no houses to buy. I bought a house earlier in the year and put an offer in the day it went on the market, and I was still only one of several offers they got that day. I also have a friend who's looking at houses right now and it seems to be basically the same, houses are getting multiple offers and selling within a few days of going on the market, and anything that doesn't sell that fast isn't worth buying.
The good question is probably "Why aren't people selling?", but I'm not sure that's actually the issue. Google suggests at least as many homes will sell this year as last year, which leads me to believe there must be more buyers than normal.
> there must be more buyers than normal.
Petite investors. I saw somewhere on another thread speculation that a crash could come from prospective land lords not being able to make their properties affordable. That seems possible.
Petite investors. I saw somewhere on another thread speculation that a crash could come from prospective land lords not being able to make their properties affordable. That seems possible.
> Petite investors
Is there a reason to assume there are more people attempting this than normal? I would think this is the worst time to attempt that since the prices are so high. You may very well be right, but it feels like we're going full circle since presumably those 'investors' think the prices are going to continue to go up or else they wouldn't be buying...
Is there a reason to assume there are more people attempting this than normal? I would think this is the worst time to attempt that since the prices are so high. You may very well be right, but it feels like we're going full circle since presumably those 'investors' think the prices are going to continue to go up or else they wouldn't be buying...
I wish there were better data. All I can offer is anecdote.
Oh, another important point: they aren't necessarily buying investment properties! They might be buying their padnemic/wfh home and then not selling their already paid off starter home/condo
Oh, another important point: they aren't necessarily buying investment properties! They might be buying their padnemic/wfh home and then not selling their already paid off starter home/condo
It depends on the place, but as a random data point, in a very hot market, Romania, I have a few separate data points of people with means to buy that are holding off for exactly the reason you mention.
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OK, but the number of people who are buying houses is high enough to drive the prices into the stratosphere. If the non-buyers were trying to buy, prices would be even higher. So I'm not sure that you can use the existence of non-buyers to say that there's fear of a collapse. There's less fear than normal right now, as measured by what the market is doing.
There's less fear than normal right now, as measured by what the market is doing.
How broad is the market relative to society? Could say 3% of people investing tons of money, while 97% are not, create the same result we are seeing today?
How broad is the market relative to society? Could say 3% of people investing tons of money, while 97% are not, create the same result we are seeing today?
Yes, that's possible. I do not have the data to either confirm or disprove it.
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Two Anecdotes: I have a friend who recently sold his house because he expects a collapse (sell high, buy low). I am waiting to buy a house because I also expect it to collapse.
One is active, the other passive
One is active, the other passive
> And houses take a while to build -- four months minimum, nine+ more typical. So even if overbuilding started today, there's still a good year or so before that stuff comes on the market.
The ECB is talking about Germany, France and the Netherlands, where the average home is an apartment in a shared building. Going on anecdata from my surroundings, those take at least two years from project for sale to finished and ready for use.
That coupled with limited place and an already existing housing shortage and growing prices, it will IMHO take much longer than a year for the current shortage to be corrected.
The ECB is talking about Germany, France and the Netherlands, where the average home is an apartment in a shared building. Going on anecdata from my surroundings, those take at least two years from project for sale to finished and ready for use.
That coupled with limited place and an already existing housing shortage and growing prices, it will IMHO take much longer than a year for the current shortage to be corrected.
Yep, that's the short term bear case. The long term bear case is: demographic pyramid inversion, interest rates bottoming out, and asset owners becoming a minority of the electorate.
> asset owners becoming a minority of the electorate.
I wouldn't hold my breath on that one - something like 95% of governors are also property investors.
I wouldn't hold my breath on that one - something like 95% of governors are also property investors.
The long term really-bear case is: asset owners becoming a minority of the electorate, revolution, war, and then everybody dying and most of the housing stock being destroyed.
I'd rather be an asset owner than a revolutionary in that case, though, because it's always easier to play defense than offense. The vast majority of non-billionaires can sit tight and not be explicitly targeted, but starving revolutionaries have to fight for survival. Assets can be rebuilt, but death is permanent.
I'd rather be an asset owner than a revolutionary in that case, though, because it's always easier to play defense than offense. The vast majority of non-billionaires can sit tight and not be explicitly targeted, but starving revolutionaries have to fight for survival. Assets can be rebuilt, but death is permanent.
The last 20 years has taught me to be suspicious of renormalization arguments. History marches on; people have memories, but history itself seems to be a big Markov process where the future depends only on the present and the forces that drive it, not the past.
I could believe an argument based on causal links of supply & demand, but I'm skeptical that they'll operate in the direction you suggest. To my eye: remote work was a spring that's been ready to burst since about 2014 but needed the pandemic to catalyze it; we're not going back to offices; home offices are going to become very desirable; savings (in the form of financial assets, at least) are increasing because of inflation; and supply chain bottlenecks are not normalizing anytime soon.
I could believe an argument based on causal links of supply & demand, but I'm skeptical that they'll operate in the direction you suggest. To my eye: remote work was a spring that's been ready to burst since about 2014 but needed the pandemic to catalyze it; we're not going back to offices; home offices are going to become very desirable; savings (in the form of financial assets, at least) are increasing because of inflation; and supply chain bottlenecks are not normalizing anytime soon.
> The last 20 years has taught me to be suspicious of renormalization arguments.
2021-2008 = 13 < 20.
2021-2008 = 13 < 20.
I'm actually thinking of late-90s up through today:
There were a lot geopolitical papers written then about the unipolar world and how we'd reached the end of history and liberal democracy had won. To the extent that people imagined threats to U.S. dominance, they usually envisioned state actors like Russia or China. Few people predicted the rise of international terrorism, widespread state failures, mass migrations, and internal destabilization of states.
There were a fair number of commentators who said that the Internet was a fad and we'd go back to calling up businesses when we got tired of webpages. The dot-com boom was a bona-fide bubble - it burst, severely - and yet it also wasn't. I predicted the Amazon would go out of business in 2001 when their stock was down 90% in a year; it now owns retail, and is worth 50x that.
People wondered how the hell a website for throwing virtual sheep at one another was worth $15B in 2007. It's now worth $942B, and blamed for taking down governments.
We just had a page at the top of HN about someone's 2011 prediction that Bitcoin would fail. It did, for all the reasons they listed, and yet is still worth 20,000x what it was going for then. It's also had some 60-70% declines in that process.
The general lesson I take from these is that life is a whole lot more random and absurd than a lot of people think it is. A lot of people who lose everything in bubbles are right about the direction of the trend (oftentimes on a subconscious level), but wrong about magnitude and timing. I see a lot of people asking whether today's housing situation is like 2008, and to my eye the fundamental forces are nothing alike. But 2005-2008 might have been the bubble before the trend, which sets up the causal forces leading to a genuine housing shortage now.
There were a lot geopolitical papers written then about the unipolar world and how we'd reached the end of history and liberal democracy had won. To the extent that people imagined threats to U.S. dominance, they usually envisioned state actors like Russia or China. Few people predicted the rise of international terrorism, widespread state failures, mass migrations, and internal destabilization of states.
There were a fair number of commentators who said that the Internet was a fad and we'd go back to calling up businesses when we got tired of webpages. The dot-com boom was a bona-fide bubble - it burst, severely - and yet it also wasn't. I predicted the Amazon would go out of business in 2001 when their stock was down 90% in a year; it now owns retail, and is worth 50x that.
People wondered how the hell a website for throwing virtual sheep at one another was worth $15B in 2007. It's now worth $942B, and blamed for taking down governments.
We just had a page at the top of HN about someone's 2011 prediction that Bitcoin would fail. It did, for all the reasons they listed, and yet is still worth 20,000x what it was going for then. It's also had some 60-70% declines in that process.
The general lesson I take from these is that life is a whole lot more random and absurd than a lot of people think it is. A lot of people who lose everything in bubbles are right about the direction of the trend (oftentimes on a subconscious level), but wrong about magnitude and timing. I see a lot of people asking whether today's housing situation is like 2008, and to my eye the fundamental forces are nothing alike. But 2005-2008 might have been the bubble before the trend, which sets up the causal forces leading to a genuine housing shortage now.
These are good insights, I get the sense maybe that you may be tracking your predictions or at least are revisiting them more than most people. The common behavior is to forget just how uncertain the past was.
Or summarized: first things seem impossible, then they seem obvious.
Or summarized: first things seem impossible, then they seem obvious.
I think the dot-com example is a good analogy for the current housing market.
Prices in certain regions will just. keep. going. up. Maybe with dips here or there.
But there's also a lot of speculation happening in down-market junk.
Prices in certain regions will just. keep. going. up. Maybe with dips here or there.
But there's also a lot of speculation happening in down-market junk.
What's not being spoken about in the article is interest rate increases. They're as low as they can go, the only way is up at some point. If rates increase, servicing current debts maybe impossible forcing people to sell and financing new purchases at current prices is out of reach for new buyers.
Given current inflation expectations (and reality) the ECB will probably come under a lot of pressure to start raising rates.
The French are already trying to play down inflation to try and avoid the above scenario I'm guessing
https://www.bloomberg.com/news/articles/2021-11-18/don-t-pan...
Given current inflation expectations (and reality) the ECB will probably come under a lot of pressure to start raising rates.
The French are already trying to play down inflation to try and avoid the above scenario I'm guessing
https://www.bloomberg.com/news/articles/2021-11-18/don-t-pan...
Although true in Europe, the US is less susceptible to this because of our 30 year fixed rate mortgages. In fact, here, it's the opposite: interest rate increases -> decreased housing prices -> decreased tax assessments -> lower total cost of ownership for already-issued loans -> less risk of default for current home owners.
In a vacuum.
In a vacuum.
I think the risk in the US is if house valuations fall too much and you're severely underwater, people will just walk away from mortgages. I believe we saw this in 08. Not as direct a risk in non-fixed mortgage countries, but still an issue.
Plenty of fixed rate mortgages in Europe. 30 year fixed is about 2% here at the moment.
Fixed rates have been close to 1% in Italy for a long time. I don't think anybody went adjustable rates in the last years, it could get negative (I think it happened somewhere in northern Europe) but it can easily grow and bankrupt people in the 10 - 20 years lifespan of a mortgage.
Lots of people go variable interest rate.
It's cheaper and has been for many years..
The argument is that when interest rates go up, you refinance at a fixed rate while you can afford it, or sell stocks to payoff a larger portion of you morgage.
That strategy certainly has issue, because stocks will probably crash a bit when interest rates go up.
On the flip side, interest rates will go up slowly, so you might be able to refinance to fixed rate -- the hard part is doing this before it's too expensive. As it'll always be more expensive than sticking with your variable rate.
It's cheaper and has been for many years..
The argument is that when interest rates go up, you refinance at a fixed rate while you can afford it, or sell stocks to payoff a larger portion of you morgage.
That strategy certainly has issue, because stocks will probably crash a bit when interest rates go up.
On the flip side, interest rates will go up slowly, so you might be able to refinance to fixed rate -- the hard part is doing this before it's too expensive. As it'll always be more expensive than sticking with your variable rate.
"The only way is up" is a bad argument for trying to predict interest rates. There are other ways. First, no change. Second, negative. People have been making the "they have to go up eventually!" argument so long now that I'm starting to think that no, they don't have to.
The first part of your statement would only apply if most mortgages were adjustable rate. They are not (at least in the US). ARM loans were under 10% of all loans in 2019 [1]. Everyone who locked in a fixed rate loan is fine until they need a new home. I would expect rising interest rates to stabilize or maybe slightly decrease market prices, not cause a massive decrease.
[1] https://www.washingtonpost.com/business/2019/02/14/adjustabl...
[1] https://www.washingtonpost.com/business/2019/02/14/adjustabl...
Article is about ECB not Fed. The 30 year fixed rate mortgage is a pretty American thing.
In France fixed rate mortgage rate is the vast majority. Only 2% of mortgage have variable rates: https://www.immobilier-danger.com/taux-immobilier.html
It would however affect people with HELOCs, which I believe is tied to prime + 2%. I have no idea how many people took out a HELOC during the pandemic though.
Others have pointed out that this won't affect existing fixed-rate mortgages, and they're right. But it will affect new purchases. For most home buyers, their ability to pay is determined by the monthly payment, not by the total price.
> For the bubble to burst, a lot of underutilized housing would need to come onto the market at once...
It doesn't have to be a lot. It might only require a little underutilized housing to cause a price drop, depending on how inelastic the market is. If that is indeed the case, then the high-price situation would be fairly fragile, and worthy of being called a "bubble", even if it reflects a current shortage.
It doesn't have to be a lot. It might only require a little underutilized housing to cause a price drop, depending on how inelastic the market is. If that is indeed the case, then the high-price situation would be fairly fragile, and worthy of being called a "bubble", even if it reflects a current shortage.
There certainly is underutilized housing - many cities will have examples of property being bought for investment and then maybe being an airbnb or totally unused.
What there isn't yet is unsold housing.
What there isn't yet is unsold housing.
There is, but I'm curious just how big it is compared to latent demand.
On a random drive through a residential area, I'll see an occasional vacant lot or house with its lights perpetually off, but the vast majority of houses seem to be actively lived in. By contrast, I know lots of people that want houses but can't afford them. Either they're living with parents, or raising a family in a condo/apartment that's too small for them, or they've got roommates, or they're doubled/tripled up in a unit with extended family. If prices went down, they'd jump at a chance to buy, but they can't make it work right now.
For a bubble to burst, there'd need to be more vacant units being held as investment properties than there are persons/households that are bunking with people they'd rather not be with. I'm unconvinced this is the case; it certainly seems counter to my experience.
On a random drive through a residential area, I'll see an occasional vacant lot or house with its lights perpetually off, but the vast majority of houses seem to be actively lived in. By contrast, I know lots of people that want houses but can't afford them. Either they're living with parents, or raising a family in a condo/apartment that's too small for them, or they've got roommates, or they're doubled/tripled up in a unit with extended family. If prices went down, they'd jump at a chance to buy, but they can't make it work right now.
For a bubble to burst, there'd need to be more vacant units being held as investment properties than there are persons/households that are bunking with people they'd rather not be with. I'm unconvinced this is the case; it certainly seems counter to my experience.
Doubt many investors keep their properties intentionally unused.
Totally agree with this notion, and also wonder if this article takes into account how much of a wildcard we're all in right now. Standard monetary scrutiny may not apply because we just lived through a global disaster and the world is changing before our eyes i.e. "new normal", "the great reset", etc.. My wife and I are working from home forever and they're just going to have to work with that.
But the problem is how much of the demand is artificially proped up by the extremely low borrowing rate?
What central banks and feds need to think about is, if they raise rates to combat high inflation, will the higher rates induce a coma in the borrowing market, thus overcorrecting the market into a high supply/low demand situation.
While your argument is logically sound, it's not the whole picture
What central banks and feds need to think about is, if they raise rates to combat high inflation, will the higher rates induce a coma in the borrowing market, thus overcorrecting the market into a high supply/low demand situation.
While your argument is logically sound, it's not the whole picture
Could be. Or the higher rates might dry up liquidity but not affect prices, as they did in the 81-82 recession. (In other words, nobody buys houses because they can't afford to, but nobody sells houses either because they don't want to take a loss and can just live in them.) Or the market correction makes central banks flinch and they reverse their interest rate hikes, as they did in 2019. Or they hike rates, but not enough to offset inflation, and so real interest rates remain negative and prices keep going up.
The whole picture is complex. Anyone who predicts it correctly stands to make a lot of money.
The whole picture is complex. Anyone who predicts it correctly stands to make a lot of money.
> they hike rates, but not enough to offset inflation, and so real interest rates remain negative and prices keep going up.
So stagflation, with the prices going up but down in real terms.
That seems to be the best case scenario, the way to reduce overinflated asset prices without causing a panic.
And I'm pretty sure central bankers are currently dreaming of pulling this off, but it seems the market is much more aware of inflation than it was in the 70s, so I'm not sure it's more than a dream.
So stagflation, with the prices going up but down in real terms.
That seems to be the best case scenario, the way to reduce overinflated asset prices without causing a panic.
And I'm pretty sure central bankers are currently dreaming of pulling this off, but it seems the market is much more aware of inflation than it was in the 70s, so I'm not sure it's more than a dream.
All I hear from these threads is "more supply more supply increase the supply". What is the target here? Should everyone have a vacation home in every US city? Should everyone be allowed unlimited houses to rent out in addition to the one they own?
We already have enough housing to house everyone in the US (including the homeless) with ease. Where are we going to draw the line in the name of investment and speculation?
We already have enough housing to house everyone in the US (including the homeless) with ease. Where are we going to draw the line in the name of investment and speculation?
I used to think the issue was "Yes, there are houses you can buy, but not enough in the places where the jobs are.". Now I'm less convinced, just because near me, I hear about bidding wars in neighborhoods that have no good reason to be trendy.
The article is about the ECB, so the EU, not US. In any case, housing not where people want it isn't of much use. There are ongoing shortages of housing in many of the big cities in France, Germany, Netherlands. Semi-abandoned houses in the middle of nowhere don't help with that.
Strongly agree, and furthermore the phrase "a bubble" only works as a metaphor if we associate debt with empty air, and therefore the metaphor only works if we are talking about debt. But the article says that people's savings increased massively during the pandemic, which would be an ahistorical prelude to a bubble.
Good. Housing prices are insane at the moment. Housing speculation is making it unreasonable for many people to go and buy a home. It is seriously uncanny that housing has turned into speculation rather than a place to live
Turned into? This has been the expectation in the US going back at least 60 years, that you buy a house as an investment.
On the one hand it is fundamentally incompatible with making housing affordable and having "housing as a human right". But still, hundreds of millions of people planning their entire lives around this existing model will have a really painful time if there is some kind of sudden shift in this social contract.
On the one hand it is fundamentally incompatible with making housing affordable and having "housing as a human right". But still, hundreds of millions of people planning their entire lives around this existing model will have a really painful time if there is some kind of sudden shift in this social contract.
Well, it is only in the last couple of years that random people started calling me to ask if I want to sell my house for cash. So the trend has definitely accelerated.
That said a driver for housing has been that over time we have had more people with bigger houses. So it has long been a demographic concern that as the Baby Boom retires, and goes to downgrade, we could wind up with a glut on the market. On top of that telecommute has opened up a significant move away from expensive urban areas like San Francisco. Both together mean that some housing markets have nothing to keep them from a severe fall. And if there is a crash, speculators trying to cover their shirts are likely to need to sell housing elsewhere, and the result could be a cascading problem.
That said a driver for housing has been that over time we have had more people with bigger houses. So it has long been a demographic concern that as the Baby Boom retires, and goes to downgrade, we could wind up with a glut on the market. On top of that telecommute has opened up a significant move away from expensive urban areas like San Francisco. Both together mean that some housing markets have nothing to keep them from a severe fall. And if there is a crash, speculators trying to cover their shirts are likely to need to sell housing elsewhere, and the result could be a cascading problem.
What? That makes no sense. More expensive housing increases the incentive to build more, which decreases prices. The problem is many governments, local councils etc regulate land use so heavily that if a developer wants to build a block with 200 apartments NIMBYs are up in arms to protect their own interests while locking out anyone trying to get into the market.
House owners are fine with this arrangement, as they get all the benefits and bear none of the costs inherent with excessive land regulations. Non-owners get screwed.
House owners are fine with this arrangement, as they get all the benefits and bear none of the costs inherent with excessive land regulations. Non-owners get screwed.
Why do governments regulate land use so heavily? Why are house owners fine with this arrangement? Why do NIMBYs go up in arms? The root cause is the same - each actor is trying to protect the value of their investment. It makes perfect sense.
Sure, but that’s not due to houses being an “investable” item insamuch as regulatory capture. What would be your proposed alternative? Arbitrary planned construction? Like it or not, prices are one of the best ways to choose where our resources go. Land has always been an investment, that’s nothing new (The whole concept of nobility centred on owning and controlling land).
I would propose that outcomes would be significantly better if we stuck to deregulating land use and construction as much as possible and let what people are willing to pay for it dictate construction and land use.
I would propose that outcomes would be significantly better if we stuck to deregulating land use and construction as much as possible and let what people are willing to pay for it dictate construction and land use.
>Sure, but that’s not due to houses being an “investable” item insamuch as regulatory capture.
I don't understand. Do you think that politicians wake up and do regulatory capture for fun?
When I say housing as America's primary investment asset is a problem I mean that it is primary driver in how houses are priced. You don't, for example, have the same attitude when it comes to cars. It's understood that cars are a depreciating asset. Imagine the inverse - which you see in some assets like super cars. Can you imagine if people lobbied to have Toyota stop producing Priuses because they did not want to value of their own Prius to go down? You would have government blocking the development of factories in the same way NIMBYs do today.
You don't have this problem in places where housing is not asset, for example Japan (who has already kind of learned this lesson with their own housing bubble). At the end of the day, when an entire generation of people have their entire net worth tied up in their houses, of course they are going to do everything to protect it. Regulatory capture are down stream effects of that - people wouldn't burn political capital on regulatory capture if they weren't gaining anything from it.
Saying de-regulation of land use is a solution completely ignores this reality. Forget deregulation, the bay area has been trying to get areas simply rezoned for multi-family housing. The same people who stand in the way of rezoning, will also stand in the way of deregulation. And those same people are primarily motivated to protect their investment. You must look at the whole picture.
I don't understand. Do you think that politicians wake up and do regulatory capture for fun?
When I say housing as America's primary investment asset is a problem I mean that it is primary driver in how houses are priced. You don't, for example, have the same attitude when it comes to cars. It's understood that cars are a depreciating asset. Imagine the inverse - which you see in some assets like super cars. Can you imagine if people lobbied to have Toyota stop producing Priuses because they did not want to value of their own Prius to go down? You would have government blocking the development of factories in the same way NIMBYs do today.
You don't have this problem in places where housing is not asset, for example Japan (who has already kind of learned this lesson with their own housing bubble). At the end of the day, when an entire generation of people have their entire net worth tied up in their houses, of course they are going to do everything to protect it. Regulatory capture are down stream effects of that - people wouldn't burn political capital on regulatory capture if they weren't gaining anything from it.
Saying de-regulation of land use is a solution completely ignores this reality. Forget deregulation, the bay area has been trying to get areas simply rezoned for multi-family housing. The same people who stand in the way of rezoning, will also stand in the way of deregulation. And those same people are primarily motivated to protect their investment. You must look at the whole picture.
Bit late, but I think you're tying the concepts of assets a bit too much into this. Any expensive item can be an asset, it just so happens that land is by far the easiest for governments to regulate and control.
Houses are still assets in Japan, but they are much cheaper because of Japan's very loose zoning regulations.
If we want to address this in the West, practically speaking higher levels of government need to override local government zoning regulations (ie. governments less beholden to the interests of the local few at the expense of everyone else)
Houses are still assets in Japan, but they are much cheaper because of Japan's very loose zoning regulations.
If we want to address this in the West, practically speaking higher levels of government need to override local government zoning regulations (ie. governments less beholden to the interests of the local few at the expense of everyone else)
There is a big difference between modelling the purchase of your own house as an investment, and the speculative investment of large banks in the housing market.
Housing prices do not have to go up for them to be a good investment for the person living in the house. If a homeowner can sell the house for the same price they got in at, then they have lived rent free. Even if they lose the interest on their mortgage, that's still likely to be a better deal than renting.
Housing prices do not have to go up for them to be a good investment for the person living in the house. If a homeowner can sell the house for the same price they got in at, then they have lived rent free. Even if they lose the interest on their mortgage, that's still likely to be a better deal than renting.
60 years ago housing was an investment in a very different form than it is today. 60 years ago was before Reagan and Trump tax reforms - both of which changed the rules in major ways. (every year the tax rules change in minor ways) 60 years ago also had much higher interest rates than today. Those two are very significant.
Back then deducting your interest from your taxes was very important. The middle class could hardly afford to live in a tiny apartment, but the interest tax deduction meant they could afford to live in a good sized house. Back then you bought a house with the understanding that in 30 years it would be paid for - right about the time you were ready to retire, and then you lived rent free for the rest of your life (nobody considered nursing home expenses).
Today housing as an investment to most people mean do a cash out refinance every few years so they can live beyond their means, then sell to some bigger sucker when they are done.
If you think of housing as the first type of investment it can still be good in some cases. You need less money when you are retired and can live a long life in the place where you made your memories.
Of course when talking about investing in housing it must be repeated "location location location". For some of you your location (and in particular change of location over time!) means buying a a bad investment. For others your location means buying is great. You have to figure this out for yourself.
Back then deducting your interest from your taxes was very important. The middle class could hardly afford to live in a tiny apartment, but the interest tax deduction meant they could afford to live in a good sized house. Back then you bought a house with the understanding that in 30 years it would be paid for - right about the time you were ready to retire, and then you lived rent free for the rest of your life (nobody considered nursing home expenses).
Today housing as an investment to most people mean do a cash out refinance every few years so they can live beyond their means, then sell to some bigger sucker when they are done.
If you think of housing as the first type of investment it can still be good in some cases. You need less money when you are retired and can live a long life in the place where you made your memories.
Of course when talking about investing in housing it must be repeated "location location location". For some of you your location (and in particular change of location over time!) means buying a a bad investment. For others your location means buying is great. You have to figure this out for yourself.
> 60 years ago also had much higher interest rates than today.
60 years ago had much higher inflation as well. People are scoffing at 6% inflation during this dramatic COVID19 period... but 1974 had 11% inflation, and 1980 had 13.50% inflation.
Under such a market, you had to have higher interest rates. After all, 10% interest rates would _LOSE_ money under real terms in 1974, 1979 and 1980 (all three years famous for having "double-digit" inflation rates).
When banks are charging maybe 15% or 20% for mortgages, housing prices necessarily have to plummet to make those houses affordable to the masses.
60 years ago had much higher inflation as well. People are scoffing at 6% inflation during this dramatic COVID19 period... but 1974 had 11% inflation, and 1980 had 13.50% inflation.
Under such a market, you had to have higher interest rates. After all, 10% interest rates would _LOSE_ money under real terms in 1974, 1979 and 1980 (all three years famous for having "double-digit" inflation rates).
When banks are charging maybe 15% or 20% for mortgages, housing prices necessarily have to plummet to make those houses affordable to the masses.
I've been really amused at the news reports stating "highest rate of inflation in the US in 30 years!"
Because 1991 is well remembered for...inflation.
Because 1991 is well remembered for...inflation.
The 1970s were 40 years ago not 60. Inflation has varried a lot over the years.
Though a house as a real good. Is an investment against inflation which is sometimes more important than others.
Though a house as a real good. Is an investment against inflation which is sometimes more important than others.
>Back then deducting your interest from your taxes was very important.
Because of how mortgages are amortized, the deduction's value to the taxpayer doesn't vary directly with the interest rate, but with the total value of the mortgage. Your payments are always going to be mostly interest in the first few years, transitioning over to principal in the later years.
Because of how mortgages are amortized, the deduction's value to the taxpayer doesn't vary directly with the interest rate, but with the total value of the mortgage. Your payments are always going to be mostly interest in the first few years, transitioning over to principal in the later years.
Most people are getting raises, so as the deduction loses value the raise is making up for the loss.
Not important today when basically nobody qualifies for the deduction.
Not important today when basically nobody qualifies for the deduction.
I bought my house (suburb of Seattle) for $300k seven years ago. It's been feeling pretty small lately, so I occasionally check Zillow to see what's on the market. I can't find anything within a reasonable commute (~45 minutes) to work without paying at least $800k, and even then, it's usually a derelict property that probably will need to a few hundred thousand more to bring it up to par.
My three options seem to be:
1. Live with the small house (and awesomely small principal) we have, at least until the bubble bursts 2. Suck it up and pay a ton of money 3. Move far from Seattle.
I'd actually love option 3, but with established relationships in the area, it's not a great option socially for the family.
My three options seem to be:
1. Live with the small house (and awesomely small principal) we have, at least until the bubble bursts 2. Suck it up and pay a ton of money 3. Move far from Seattle.
I'd actually love option 3, but with established relationships in the area, it's not a great option socially for the family.
With spending 300k seven years ago what is the value of the property now? Would't be surprised if it's 600k+. Let's assume you put 60k into downpayment and maybe you've gotten another 40k in principal put in from payments. That's 400k of equity you can put into a new place.
Sure this is technically option 2, but it's not as terrible if you compare to people that are buying now without having equity grown for years to help purchase.
Sure this is technically option 2, but it's not as terrible if you compare to people that are buying now without having equity grown for years to help purchase.
A lot of people get tripped up by nominal prices. Ignore the big numbers, and focus on the return you will be getting using the non callable (and non recourse in WA state) leverage you get with a home mortgage.
Unless Seattle stops being attractive to people with high incomes, you have nothing to worry about. Use your current home’s equity to get the house you want.
The situation mainly sucks for people who jump on the equity ladder later than those who jumped on earlier. But that is how our society is structured, and I do not see a reason for that to change soon.
Unless Seattle stops being attractive to people with high incomes, you have nothing to worry about. Use your current home’s equity to get the house you want.
The situation mainly sucks for people who jump on the equity ladder later than those who jumped on earlier. But that is how our society is structured, and I do not see a reason for that to change soon.
While true, it is the only hope that someone without money has to beat the market. Low interest rates and tax deductions and inflation mean you are paying back loans with positive leverage you can't get elsewhere.
I was thinking the same. I do hope the "bubble" bursts, it might be the occasion I get to actually own a house for once.
I don’t understand this. Yes, houses are expensive, but so what? No one is paying that straight up front. You get a mortgage at record low interest rates and pay it off over the course of many years. The extra hundreds of thousands of dollars in price inflation amounts to what, a few hundred more dollars a month in mortgage payments? People need to get a grip. Renting is far more expensive.
The real problem, is that people are getting shitty jobs and careers and expecting that will cover the lifestyle they want. And are also completely and utterly financially illiterate.
The real problem, is that people are getting shitty jobs and careers and expecting that will cover the lifestyle they want. And are also completely and utterly financially illiterate.
You seem to have a US-centric mindset. The article is specifically about EU prices. Renting, in Munich, Germany for example, is far less expensive than buying an equivalent home. Further, it is likely that the downpayment needed to take out a mortgage is significantly higher, percentage-wise, than the typical American mortgage, which also means people are paying more up front as prices continue to rise.
That might be true in Germany, but in The Netherlands it's a cheaper to buy and the down payment is just a few percent for fees and taxes.
the greater San Francisco Bay Area has had a provable shortage of close to 500,000 dwelling units since the 2000 era.
source: California licensed urban planners
you are not wrong about service-level jobs, but you are missing a lot on the availability topic. pre-built conclusions wont help in developing solutions to an undeniable problem of housing
source: California licensed urban planners
you are not wrong about service-level jobs, but you are missing a lot on the availability topic. pre-built conclusions wont help in developing solutions to an undeniable problem of housing
"Renting is far more expensive."
A person does not need $50,000 cash to move into a rental unit, let alone the cost of taxes, upkeep and maintenance.
> A person does not need $50,000 cash to move into a rental unit
The downpayment is indeed a hurdle to get into ownership. There are times/banks which will allow a much lower downpayment, though that has its risks.
> let alone the cost of taxes, upkeep and maintenance
The renter is of course paying for all of those, as the landlord is passing on all the costs and making a profit on top.
The downpayment is indeed a hurdle to get into ownership. There are times/banks which will allow a much lower downpayment, though that has its risks.
> let alone the cost of taxes, upkeep and maintenance
The renter is of course paying for all of those, as the landlord is passing on all the costs and making a profit on top.
This is only half the story. Yeah, you can get a mortgage easily, you just can't easily get the house you want, because everyone and their dog can also get a mortgage and bid against you.
Nobody seems to mention down payments. Even just 5% of a $600,000 home is $30,000.
And then you will have to pay 1.1% tax every year.
Well, it has to at some point. The hard question is when.
Market timing is really tough.
Here's the long term house price to median income ratio chart for the US and UK.[1] We're basically repeating 2008.
[1] https://www.longtermtrends.net/home-price-median-annual-inco...
Here's the long term house price to median income ratio chart for the US and UK.[1] We're basically repeating 2008.
[1] https://www.longtermtrends.net/home-price-median-annual-inco...
Even if we're at the same home price / income ratio as 2008, a big difference is mortgage rates. In 2008 a 30 year was 5.5%-6.5%. Now it's 3%. So we aren't yet near 2008 levels of mortgage payment / income ratio
Not to mention that servicing these debts is getting more easy with time than before, as the dollar inflates. Not good in general, but predicting a housing crash due to over-leveraging is a bad thesis: people can easily afford to pay their mortgages. And besides, we all know "repeating 2008" is not a thing: financial crises happen when the thing nobody predicts occurs. 2008 is still fresh in everyone's memory, so you can be sure that particular kind of cascading effect won't be the catalyst for the next crisis. (It may rhyme, though.)
Vacancies are still nowhere close to 2008 levels though. May indicate that there's more legitimate demand and less speculation going on. https://fred.stlouisfed.org/series/ESALEUSQ176N
New housing starts are also interesting. Continuing to trend upward but still well under where we've been in the past. https://fred.stlouisfed.org/series/HOUST
New housing starts are also interesting. Continuing to trend upward but still well under where we've been in the past. https://fred.stlouisfed.org/series/HOUST
I really love this website. Thanks.
The issue is we have an absolute flood of money landing at least in the US. The build back better plan is all front loaded spending, back loaded taxes.
Where does all this money go? I'm serious. If you put it in the bank it makes 0.01%.
No question there is a bubble, but what's going to pop it, and where do people put their money - and no - I think crypto is pretty garbage so lets leave that out.
P/E ratios on equities are currently crazy as well.
Where does all this money go? I'm serious. If you put it in the bank it makes 0.01%.
No question there is a bubble, but what's going to pop it, and where do people put their money - and no - I think crypto is pretty garbage so lets leave that out.
P/E ratios on equities are currently crazy as well.
You trade it before other people realize the ponzi scheme is nearing its end. The question is which countries currency is not entangled with the US.
I think most people in this thread should read this report [1]. It's quite eye opening to see how a small change in interest rates exerts strong downward pressure on housing prices because of how many buyers get priced out. Essentially, I think the ECB is saying that if interest rates go up, and they have nowhere else to go, then housing prices _have_ to come down, regardless of the other factors at play. People just get priced out.
[1] https://www.nahb.org/-/media/NAHB/news-and-economics/docs/ho...
[1] https://www.nahb.org/-/media/NAHB/news-and-economics/docs/ho...
How do we know that institutional buyers won't step in and take advantage of the price dip, minimizing the overall decline? Imagine a quarter of falling prices, then the big money comes in to make purchases, easing the blow to prices. It's hard to know how much cash is sitting on the sidelines but it's certainly a possibility given the proportional increase in institutional purchases.
1 - The most recent estimates that I've seen suggest that institutional buyers are still a small portion of the market overall. I have seen no evidence, anywhere, to suggest that institutional players alone could keep home prices growing at this rate.
2 - As interest rates rise bonds and other investments become significantly more lucrative and will draw money out of real estate, as real estate is significantly less liquid than most other investments.
Yep. Interest rates don't mean jack if there's a bottomless market of buyers who will not use debt and just want to put capital somewhere, anywhere, that will appreciate in a highly inflationary environment. It will be tragic that average people won't be buying homes, but the notion that consumer home purchases have the power to move market prices much seems like a weaker and weaker assumption.
I think another factor for continued demand is what some have called the "millennial baby boom". Millennials are aging and getting to the point where they are confronting having a child or not. Those that want kids likely also want a house, and those same people are probably also the most likely to want to work remotely. They are also likely the group that has been living in a city and are thinking to move out of the city closer to family, to a larger house, where they can raise the kids they want and have them go to a good public school.
I think these may be some of the bigger factors that are pushing the continued demand in the housing market.
Also the idea that interest rates are at a historic low in the US, many are thinking they should nab a house they can right now and lock in the rate. They are also afraid of inflation so waiting means higher priced houses and higher interest rates, which means they have to go to a "worse" neighborhood or area, or less of a house. So the pressure is to get something now.
It's hard to see this demand going away for the next 5-10 years while millennials are having their babies.
We will see.
Also the idea that interest rates are at a historic low in the US, many are thinking they should nab a house they can right now and lock in the rate. They are also afraid of inflation so waiting means higher priced houses and higher interest rates, which means they have to go to a "worse" neighborhood or area, or less of a house. So the pressure is to get something now.
It's hard to see this demand going away for the next 5-10 years while millennials are having their babies.
We will see.
Births and birthrates are only decreasing year after year:
https://www.cdc.gov/nchs/data/vsrr/vsrr012-508.pdf
Maybe birthrates among those with higher incomes are trending up? I could not find statistics on that quickly.
Some more data:
https://www.brookings.edu/blog/up-front/2021/05/24/will-birt...
https://www.cdc.gov/nchs/data/vsrr/vsrr012-508.pdf
Maybe birthrates among those with higher incomes are trending up? I could not find statistics on that quickly.
Some more data:
https://www.brookings.edu/blog/up-front/2021/05/24/will-birt...
There are also those of us that feel a bit screwed by buying a "starter" home. While that starter home has appreciated, we can't afford a bigger home for our bigger family in the same area, which means we have to think of alternative areas, which means we push prices up in those areas.
I think many are trying to jump into their forever home so they can enjoy it without being worried for the future when they need to upgrade and are priced out. This is at least the dynamic in the bay area.
I think many are trying to jump into their forever home so they can enjoy it without being worried for the future when they need to upgrade and are priced out. This is at least the dynamic in the bay area.
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The question is: what investment options are there for a savings-rich population in an environment of high inflation? Get ripped off gambling in the rigged casino that is the stock market? Buy bitcoin? It's no surprise housing is going crazy. Does anyone expect there to be a new, stable investment opportunity come into existence in the next 10 years? I wish it were different.
The same it's been for the past 50 years, buy an ETF and be done with it.
Which ones?
US total market ($VTI) and International total market ($VXUS).
You could slightly bet on value ($VTV) for having better current profits (P/E 20 means effectively 5% real interest w/o growth) and typically doing better in rising rate environments (many banks in the index which have better profits on larger interest rate spreads).
You could slightly bet on value ($VTV) for having better current profits (P/E 20 means effectively 5% real interest w/o growth) and typically doing better in rising rate environments (many banks in the index which have better profits on larger interest rate spreads).
Something with a high spread on the market (ie SP500/SP100/FTSE) will generally give you good returns over time. The trick is to be consistent, not micromanaging and not worrying. It took 5 years for sp500 to catch up to pre-2008 levels, then another 4 years to double, so in the long term, market crashes aren't a problem.
It's good to read about it a little bit or pay someone to tell you what to do (200$ for a session won't matter much in 10 years). Ie where I live, the longer you have stocks the lower taxes are (20% at 0 years, 0% years), so it makes sense to invest in the long here, and you want to get funds that reinvest the dividends (Accumulating funds) so you don't have to pay taxes on the dividends every tax period.
It's good to read about it a little bit or pay someone to tell you what to do (200$ for a session won't matter much in 10 years). Ie where I live, the longer you have stocks the lower taxes are (20% at 0 years, 0% years), so it makes sense to invest in the long here, and you want to get funds that reinvest the dividends (Accumulating funds) so you don't have to pay taxes on the dividends every tax period.
ARKK (Ark Invest’s primary activity managed ETF. Has a sweet December dividend coming up!)
VFMF (Vanguard’s higher growth, lower valuation S&P500 ETF. However has low trading volume.)
ESGV (Vanguard’s Environmental Social Good S&P500 index. Make good money for retirement while retiring in a world you want to live in)
XHB (SPDR S&P500 Homebuilders ETF. There’s clearly a housing shortage, so here’s a direct way to help the world build more homes.
Disclosure: I am medium/long-term invested in all of these.
VFMF (Vanguard’s higher growth, lower valuation S&P500 ETF. However has low trading volume.)
ESGV (Vanguard’s Environmental Social Good S&P500 index. Make good money for retirement while retiring in a world you want to live in)
XHB (SPDR S&P500 Homebuilders ETF. There’s clearly a housing shortage, so here’s a direct way to help the world build more homes.
Disclosure: I am medium/long-term invested in all of these.
They could invest in creating new small businesses?
In an inflationary environment you want assets. 30 year fixed mortgages are a great way for a regular person to get a levered asset. SPY would be next on my list followed by a little bit of BTC and ETH if someone wants to be more risky.
Investments by their nature are not 'stable'. Investments pay off because there is risk involved.
Investments by their nature are not 'stable'. Investments pay off because there is risk involved.
It's hard to say if BTC and ETH are assets, but they do have a very favorable exchange rate vs USD so will go up like other currencies relative to the dollar if sufficiently decoupled.
Asset-wise, the crypto analog are NFTs, yield tokens, or other inherently scarce or income generating entities.
Asset-wise, the crypto analog are NFTs, yield tokens, or other inherently scarce or income generating entities.
I definitely expect there to be a ton of stable investment opportunities in crypto (DeFi, NFTs, etc.) Of course, the problem is you can't know now which one of these are that vs ones that will go to zero.
[deleted]
that is the end game for fast information highway huh, anything of remote value can have it's price carried forward instantly, and junk everywhere resulting in glut of cash ready to pounce on the next valuable thing. the best one can do is hold on to something keeps value I guess, by trading, hedging, real estate, and not sure if it's hip, gold?
More like the current game for negative real interest rates. Suddenly anything that holds equivalent value 10 years out is worth much more than current $ which will depreciate by then.
I don't know, perhaps they could actually create some value, rather than profiting off speculation. That would be a good start.
I feel like there's so much pent-up demand that it's far more likely to "deflate" than burst. Unless we are talking about some sort of major recession in which case I feel like we'll have bigger problems than a sluggish housing market.
The risk of a housing bubble bursting should be a function of the number of recent owners who can’t afford a rate hike and are forced to sell in a hurry. Is this metric tracked somewhere?
Most owners are on fixed rate mortgages, and therefore do not experience rate hikes as interest rates change. They only care about the market if they try to sell, try to refinance, or it impacts their jobs.
If there is a crash and they didn't lose their jobs, they may wind up under water. Meaning that they can't afford to move. But they still don't experience rate hikes.
The minority of owners on ARMs do experience interest rate risk. But the fact of that risk is exactly why consumers prefer the 30 year fixed mortgage.
If there is a crash and they didn't lose their jobs, they may wind up under water. Meaning that they can't afford to move. But they still don't experience rate hikes.
The minority of owners on ARMs do experience interest rate risk. But the fact of that risk is exactly why consumers prefer the 30 year fixed mortgage.
In the US that isn't an issue as most mortgages are fixed rate for 30 years. Once you lock in a low rate when you buy or refinance, you keep that until you sell the house.
My understanding in 2008 was that many people did adjustable rate mortgages (ARM) and then couldn't afford the rate hikes and defaulted. Since then everyone is afraid of getting into an ARM.
My understanding in 2008 was that many people did adjustable rate mortgages (ARM) and then couldn't afford the rate hikes and defaulted. Since then everyone is afraid of getting into an ARM.
aren't recent owners locked into a monthly payment for the next 15/30 years? People don't really get ARMs anymore.
A rate hike would only affect prospective buyers.
A rate hike would only affect prospective buyers.
That's only true in the US. In nearly every other country you have ARMs or worse. In Canada, my understanding is the typical mortgage is done on a 30 year amortization, but the loan is due in 5 years with a balloon payment. You have to reapply for a new loan for the next 5. If you're denied, you're screwed.
In most EU countries, including those discussed in the article, mortgage rates are fixed.
I think there's some confusion about the meaning of fixed. In Germany, rates are fixed for a period of time for a lot of mortgages. That would be considered an adjustable rate mortgage in the US.
Fixed rate in the US means it's fixed at loan origination for the entire life of the loan.
https://www.fitchratings.com/research/structured-finance/cov...
Edit, just found this:
https://www.iamexpat.de/housing/german-mortgages/types-mortg...
Annuitätendarlehen is indeed the same as a US fixed rate.
Fixed rate in the US means it's fixed at loan origination for the entire life of the loan.
https://www.fitchratings.com/research/structured-finance/cov...
Edit, just found this:
https://www.iamexpat.de/housing/german-mortgages/types-mortg...
Annuitätendarlehen is indeed the same as a US fixed rate.
Housing bubbles rarely burst as such. There may be some sudden falls, but most real estate price corrections work by a combination of long term price stagnation and inflation.
You can tell which vested interests have a stake in the outcome by the fact that they choose "risk" over a more neutral word like "probability" or "chance". To the 1% audience, lower housing prices are a "risk" just like fair wages are a "risk".
It’s not just a housing bubble. It’s an everything bubble. Aka inflation
Isn't the point of a "bubble" that it bursts, and prices crash? I'm not sure we're going to see sudden deflation anytime soon...
The difference (until recently) here was that investment assets were going up but the cost of living, in general, wasn't. That's a big differentiator between a bubble and inflation. Recently, however, the government started printing money and giving it to the poor and middle class. That's producing inflation, since they tend to buy stuff instead of just "letting it ride."
central banks are in a bind:
* raise rates -> the whole house of cards collapses as 10+ years of easy money have created a monster.
* keep rates at zero (actually negative) -> the monster keeps growing as people are basically forced to speculate
how this hairball will unwind is anybody's guess. in a sense the pandemic was a reprieve cause basically all risks globally have been absorbed into government liabilities through the massive and unprecedented support to the private sector
a return to biological "normalcy" may actually become an economic (or at least a market) abnormality...
* raise rates -> the whole house of cards collapses as 10+ years of easy money have created a monster.
* keep rates at zero (actually negative) -> the monster keeps growing as people are basically forced to speculate
how this hairball will unwind is anybody's guess. in a sense the pandemic was a reprieve cause basically all risks globally have been absorbed into government liabilities through the massive and unprecedented support to the private sector
a return to biological "normalcy" may actually become an economic (or at least a market) abnormality...
Something a lot of people don't realize is that we are still in the 2008 financial crisis. The stock market has gone up, and many people are happy, but the fundamentals of the economy are far from solid.
its not just stocks. besides the real estate effect being discussed here you have like 500 different cryptocurrencies all shooting for the moon, streets laced with supercars, NFT crazyness, you name it
all this amidst rising geopolitical tensions as the pax sino-americana and its supply chains are being dismantled
it all feels quite unhinged and who knows what hidden liabilities have been created
all this amidst rising geopolitical tensions as the pax sino-americana and its supply chains are being dismantled
it all feels quite unhinged and who knows what hidden liabilities have been created
The best way out is through growth. In this case, that means growing the housing supply, If more homes come on the market or more individuals build themselves homes, the housing problem solves itself.
If the central banks raise rates slowly at a quarter basis point at a time, it might not cause a crash. That is their current plan and I think it will work.
Obviously they can’t in good conscience go raise rates 2% all at once.
If the central banks raise rates slowly at a quarter basis point at a time, it might not cause a crash. That is their current plan and I think it will work.
Obviously they can’t in good conscience go raise rates 2% all at once.
> pushing house price growth to over 7%, its fastest rate since 2005.
It seems that, like inflation, the EU sees the same trends as the US but with the value roughly divided by 2.
However, in the US, the west&east coasts (especially suburbs) and a few metros (Austin, Denver, ...) the numbers are probably 4x that, so I wonder if in EU there is a similar trend, with some hotspot cities.
It seems that, like inflation, the EU sees the same trends as the US but with the value roughly divided by 2.
However, in the US, the west&east coasts (especially suburbs) and a few metros (Austin, Denver, ...) the numbers are probably 4x that, so I wonder if in EU there is a similar trend, with some hotspot cities.
It varies the same as in the US. In the US, housing in Detroit is very cheap but few people want to live there. In Europe, housing in Bratislava is very cheap but few people want to live there.
The issue with housing is that rates are very low but there are parts of Europe, just like in the US, that have been performing well economically so low rates just pour fuel on the flames (without really helping the parts that aren't doing well). This also applies to some countries, like Denmark, that have pegged their currency to the EUR (I have no idea how the Demark peg is sustainable, it makes no sense, they had strong growth, unemployment below the natural rate/serious supply issues pre-Covid, and negative interest rates...this is not a good idea, because their mortgage market is heavily securitized the impact of this likely won't come out for years i.e. when the people who have invested in the covered bond market come to pay out to retirees, and those people find out they don't have enough to retire ever).
The issue with housing is that rates are very low but there are parts of Europe, just like in the US, that have been performing well economically so low rates just pour fuel on the flames (without really helping the parts that aren't doing well). This also applies to some countries, like Denmark, that have pegged their currency to the EUR (I have no idea how the Demark peg is sustainable, it makes no sense, they had strong growth, unemployment below the natural rate/serious supply issues pre-Covid, and negative interest rates...this is not a good idea, because their mortgage market is heavily securitized the impact of this likely won't come out for years i.e. when the people who have invested in the covered bond market come to pay out to retirees, and those people find out they don't have enough to retire ever).
Between Detroit and Bratislava there is not doubt about where I would live. Bratislava is a very beautiful city.
Detroit from what I heard has vast swaths of urban area completely abandoned or squatted.
I would be surprised if Bratislava also does not have a buble as most central eastern Europe is undergoing strong growth.
Most of Eastern Europe is depopulating. Bratislava is nice but Munich or Paris is nicer because you can earn more money there.
> This also applies to some countries, like Denmark, that have pegged their currency to the EUR (I have no idea how the Demark peg is sustainable, it makes no sense
Do they have a choice? I was under the impression that all EU members agree to join the eurozone (without a time limit, so they can just stall forever, like Denmark seems to be doing), and peg their currencies to the euro pending them joining the eurozone.
Do they have a choice? I was under the impression that all EU members agree to join the eurozone (without a time limit, so they can just stall forever, like Denmark seems to be doing), and peg their currencies to the euro pending them joining the eurozone.
Yes, that is correct. I am not 100% sure on this topic but I believe it is Denmark and Sweden, of the Nordics, that signed up in 1992 to Maastricht which would mean eventually joining. But, in both cases, they haven't done so because it isn't popular (Denmark failed a referendum in 2000).
And their choice is not to peg to an economic region that is nothing like their own (although tbf, this is true of Germany/Netherlands/Austria/etc. too). The EU is not inevitable. The distortion to financial markets is not worth any political benefit (this has been true of the EU since its inception, first Germany and France were in crisis, then 2008, then debt crisis...what a mess).
And their choice is not to peg to an economic region that is nothing like their own (although tbf, this is true of Germany/Netherlands/Austria/etc. too). The EU is not inevitable. The distortion to financial markets is not worth any political benefit (this has been true of the EU since its inception, first Germany and France were in crisis, then 2008, then debt crisis...what a mess).
The whole Netherlands is a hotspot. Something like a 20% increase in house prices in the last 12 months.
Most of the houses listed on the Dutch real estate market sell for +€60K-€100K OVER the asking price. It's insane!
Most people (teachers, nurses, etc) are on €35K-45K or less gross annual salary. Cut out ~50% taxes/healthcare and living expenses and calculate how many people can afford a €500K two-bedroom apartment from '72 near Amsterdam.
Also, be prepared to drop another €20K on middlemen, notaries and tax to finalize the home purchase.
Most people (teachers, nurses, etc) are on €35K-45K or less gross annual salary. Cut out ~50% taxes/healthcare and living expenses and calculate how many people can afford a €500K two-bedroom apartment from '72 near Amsterdam.
Also, be prepared to drop another €20K on middlemen, notaries and tax to finalize the home purchase.
The suprising thing is not that houses are expensive in Amsterdam (though 500K buys quite a bit of house just outside of Amsterdam), but that houses are unaffordable for average people throughout The Netherlands.
It seems obvious to blame local governments all over The Netherlands who fail to make enough space available for building new houses.
It seems obvious to blame local governments all over The Netherlands who fail to make enough space available for building new houses.
I mean, to be fair, paying 20% over asking in the San Francisco Bay Area has been just a normal fact of life in the last 10 years.
Year-on-year inflation for producer prices currently stands at 14.2% in Germany. So it is actually already quite high.
https://www.destatis.de/DE/Themen/Wirtschaft/Preise/Erzeuger...
https://www.destatis.de/DE/Themen/Wirtschaft/Preise/Erzeuger...
The article is basically – home prices are rising fast therefore it must be a bubble therefore the bubble will burst. Is there anything actually supporting their assertion?
I'm hoping that my tax appraisal goes down next year...
I bought my house for 1.2M in late 2020 and now the latest comps put it north of 1.55M lol wtf.
I remember that feeling in 2007. Then, in 2009, my house was worth 600k.
yeah but presumably if you aren't over leveraged, who cares. I plan on staying put but if the housing market crashes I'll just buy the even bigger house above me on the hill with a view shrug.
"With families building up savings during pandemic and increasingly working from home, demand for property is on the rise..."
"Construction cannot keep up with demand and the residential market is especially hot"
"Despite the recovery in residential construction, labour shortages, global supply chain bottlenecks and input price increases are weighing on the construction sector’s ability to expand housing supply, which is putting upward pressure on house prices"
All of those are indicative of a housing shortage, not a bubble. For the bubble to burst, a lot of underutilized housing would need to come onto the market at once, into an environment where demand is dropping. If supply is tightening and demand is expanding, that's a recipe for continued price increases, not drops.
I suspect people are saying "bubble will burst" because it's going up faster than it has in recent memory, but there's nothing special about today's prices. If supply is low and demand is high tomorrow, there's a new price equilibrium that's higher than today.