Real-time market monitoring finds signs of brewing U.S. housing bubble
dallasfed.org
dallasfed.org
The reason home prices are not on line with fundamentals is - well there is just too much liquidity. Money is looking for places to go and there are not many. Except stocks. And then the next bet is real estate. They printed way too much for too long. Interest rate is at historic low, there is way too much savings, and in this inflationary environment, real estate is an excellent leveraged asset. No wonder even institutions are now buying, in fact one in every 3 SFHs in US are now owned by institutions.
Oh yeah, the same Dallas Fed chairman did not see the whole inflation thing coming either.
Yes, it is different this time.
This is hyperbole. The Fed, by and large, held the American economy together through the financial crisis and more remarkably the pandemic. Until now, neither of those produced meaningful levels of inflation. To say "their credibility is on the line" is to disagree with a multi-trillion dollar bond market taking the Fed's every word very much seriously.
> the same Dallas Fed chairman
This is the Dallas Fed's leadership [1]. None of them authored this article, certainly not the (interim) president, Meredith Black. If you want the dry stuff, what the Fed is actually saying versus its individual researchers, consult the beige book [2][3].
[1] https://www.dallasfed.org/fed/leadership.aspx
[2] https://www.federalreserve.gov/monetarypolicy/beige-book-def...
[3] https://www.federalreserve.gov/monetarypolicy/files/BeigeBoo... March 2
Central planners in the USSR were probably lauded by some subset of the citizenship, too. Doesn't mean it wasn't a sham.
Im not claiming that centralized Fed is perfectly wise, nor we should be subservient too it. But I also don’t want to live in a non-government state with no financial system.. an example that comes to mind is Somalia.
When that choice is before the American people, we'll be sure to turn to your perspective, but it's entirely irrelevant to the topic at hand, which is that the fed caused a problem they have yet to fix and they're not even now taking the steps necessary to fix it. We have a word now that exemplifies the ridiculous policymaking perspective that led the last year of bad decisionmaking: transitory inflation. That concept was laughable.
Source?
The vast majority of rental stock is not SFH, and the vast majority of rental homes are owned by mom & pop's.
There's a demand curve of renters willing to rent housing at different price points and I can see how this would put a lower-bound on housing prices, but why should there be any upper bound? When you buy a house you intend to live in there is no associated revenue stream, and the only return you can hope for is your expectation that someone else will buy the house from you for more in the future.
Maybe you can quantify that return, by modeling a rising population and municipalities which are slow to add housing? It still feels like housing is worth what other people are willing to pay for it, that's the fundamental.
1) The Fed should create the outcomes such that their predictions were wrong
2) While also just having a bad interpretation of data to begin with
3) The Fed is only imagining that its toolkit can cause a specific outcome for economic growth, but it cannot cause humans to transact a certain way or predict what a large group of humans (or large pool of capital) will do. No economist can, and the other economists don't have an infinite balance sheet to try to influence it either.
4) The Fed was never asked to or mandated to do the things it does to stimulus the economy. (Caveat, the stimulus bills in 2020 are a major exception). The Fed just notices that nobody can stop it. Similar to the Supreme Court realizing that and testing it in Marbury v Madison. Congress lacks consensus on it and everyone is afraid of the alternative (Congress having to deal with monetary policy themselves, politically).
The Fed chair saying "we're fucked" is, on its own, enough to cause a credit crisis. (This is why the Fed doesn't tend to make blanket forward-looking statements like "everything is just fine.")
Either the fed is powerless to stop the economic crisis we've suffered, or they're too incompetent to manage them. Either way it looks like they need dissolved.
Also note [2]:
"In 1913, this problem was addressed by the creation of the Federal Reserve System (Fed).33 The Fed was to remedy the situation in a two ways. First, it would provide a means by which banks could borrow in times of stringency to satisfy their customers’ demand for cash. Second, it could create a new form of money, Federal Reserve notes, which could be expanded or contracted in quantity to respond to the need for more cash."
"The creation of the Federal Reserve had little if any effect on the gold standard. The dollar was still defined in terms of gold. Federal Reserve notes were redeemable in lawful money. The Fed not only operated under the gold standard, but was charged with maintaining it, and kept a percentage of gold cover for its notes. Gold still dictated the value of the dollar. "
[1] https://www.federalreservehistory.org/essays/great-depressio....
“ Because the international gold standard linked interest rates and monetary policies among participating nations, the Fed’s actions triggered recessions in nations around the globe.”
That’s what I was alluding to, sorry for not being clear :)
>the Fed's actions triggered recessions
I don't think this strengthens the case for justification of the fed.
It's like people who ask why they need to be vaccinated for polio now that there's very few cases of it.
False, false, and false.
"Despite the creation of the Fed, a wave of bank runs resulted in massive bank failures over the period 1930-1933."
Considering that after 2008 and 2020, we did not end up living in a weird Mad-Max blood-covered hellscape, trading bottlecaps for hits of zyme and ammunition (Which would have been the likely ideological outcome of 'just let the whole economy fail'), I think the Fed has weathered the past two decades fairly well.
It seems like there were two big problems that we have done a good job avoiding since then.
#1. Way too many people were rich on paper and with margin.
#2. Once the economy started to collapse everyone panicked and tried to avoid spending money, which causes a negative feedback cycle.
2008 was similar to issue 1, but we avoided step 2 by bailing out the banks and auto companies that should have collapsed.
'Should' is doing a lot of work in that sentence.
Should a business that's selling $10 bills for $9 collapse? Yes, that's pretty obvious.
Should a business that's consistently selling $10 bills for $10.05, but requires access to short-term liquidity that completely evaporated overnight to function, and is now not functioning, because some other unrelated part of the economy is sick, and all flow of credit has stopped?
Should that latter business fail? Who's going to be better off for it failing? Even if killing that business will create an economic catastrophe, as well as a mountain of geopolitical concerns that are the consequences of de-industrialization? [1]
On a metric of anything but ideological purity, the fed stopping the economic collapse where it did was a bargain at twice the price.
[1] Just ask Russia in 2022 how well de-industrializing all of its inherited Soviet economy has worked out for it. It's now in the unenviable situation where its domestic production can't even sustain a Soviet-era standard of living, without relying on now-sanctioned foreign trade.
All because it hyper-optimized on growing the 'productive' parts of its economy (Oil, oil, gas, oil, and gas), and let the unproductive parts (all that old, crappy, internationally uncompetitive Soviet industry) rot away.
I don't think that the janitor at GM "should" have lost his job. It would have been nice if everyone lying about the real quality of the MBS products lost all the money they made though
Isn’t this the housing market today? A huge portion of household wealth is the house itself and thanks to massive increases everyone feels rich because on paper it looks good, but it is all financed with ever increasing levels of debt.
I'm not suggesting anyone go out and buy a 2br house for 3 million dollars, but I do think that real estate will hold it's value in general much better than USD.
https://www.worldometers.info/world-population/us-population...
My understanding is that some states have been losing people net and have still had rents and home values skyrocket. I think an increase in Airbnb would be one possible contributor.
'xnx did the same thing as a sibling comment, but I just wanted to add that we can do better! This info is super readily available.
1. Population: https://fred.stlouisfed.org/series/POPTOTUSA647NWDB 2. Housing Units: https://fred.stlouisfed.org/series/ETOTALUSQ176N
Same point in a different context: I would be skeptical of someone arguing that the reason for the Great Resignation is opportunities opening up in the workforce due to COVID casualties. The numbers just aren’t high enough.
So, if we had 1m excess Covid deaths in the past ~2 years, the population would still have grown by ~1.5m per year.
Source?
Did you even try to find this source on your own? If not, whose obligation do you think it is to supply a source for empirical claims in a civil discussion?
Or if you’re trying to educate yourself or simply asking out of interest, there’s probably a more meaningful way of engaging with the OP than a one word comment: ‘source’.
This would be impossible to do without knowing what the poster meant by vacant rentals. Some would interpret any empty rental unit as vacant, whereas others would interpret it as a rental that is actually available for rent as being vacant. Without a source or other clarification, it can be impossible to know by which definition someone is using.
>if not, whose obligation do you think it is to supply a source for empirical claims in a civil discussion?
The burden on proof is always on the one making the assertion.
> there’s probably a more meaningful way of engaging with the OP than a one word comment: ‘source’
It saves everyone from reading a long sentence when in the end all they are asking is for the person making the assertion to supply proof.
Really really high housing prices are sustainable if the supply is low enough. Imagine a city of 100K with only 10 houses for sale, it doesn't matter if 99K can't afford houses. all that matters is that 10 or more people can afford the remaining houses. as long as that's the case, prices can and will continue to climb higher and higher. this is an incredibly distopian future where fewer and fewer can afford shelter.
Now ask yourself where supply is going. that's the key to understanding the next moves in the housing markets. Builders are still saying, that even at the current prices, they're having a hard time getting a good ROI(considering all the supply and labor shortages) and aren't very bullish which means supply can't increase much. And in much of the country increasing housing supply is made illegal through regulations and zoning.
It is not "housing supply." The latter is the quantity of single-family homes on the market in common sense.
Here's the source for the graphic: https://www.aei.org/carpe-diem/new-us-homes-today-are-1000-s...
Both of them have put in at least 3 bids on houses in the last year or so and every time they got out-bid by a lot. Imagine a listed house at $600,000. You offer $620,000. You lose and find out later the house sold for $720,000.
This is freaking New Jersey and Tampa, Florida. None of this is realistic. Why is it like this?
What price was the comp homes being sold for?
I just lost after putting a $1,325,000 bid on a $1,000,000 list price for a 1000sqft house
Edit, Zero added
Edit>> they left off a zero in the first number.
It's like it because the house isn't actually worth $620,000. It's worth closer to $700,000, but if the seller underprices it, they are hoping that emotionally attached people with more money than sense enter into a bidding war, that drives the sale price way past its real value.
The best way to drive up the sale price for your house is to offer it for a bargain.
When looking at housing cost trends, don't look at listing prices, look at sale prices. Sale prices in that area didn't go up by 20% over the span of a week. If they did, those houses would be selling for trillions of dollars by the end of next year.
House details: https://www.zillow.com/homedetails/38-Sycamore-Ave-Mill-Vall...
Something doesn’t add up? But maybe it’s just a question of most homes on the market actually not being desirable enough to get these high bids.
I just moved to Chicago instead and got a place for 10% under asking...
Cook County... Well, that's a different story. The current assessor is following through on his campaign promise to clean up the assessors office and make property assessments modern and fair. And everyone hates him. If his reforms survive, the next step is to start a fight over how much everything costs. And then Cook County will be well on its way to fiscal health. If the reforms do not survive...
But you should also note that property taxes as a percentage of property value are significantly lower in the city of Chicago than suburban Cook County. Like a house in Chicago could be paying half the property tax compared to a similarly-priced house in Glenview.
But that's also interesting to note that city of Chicago is quite cheap then unincorporated? suburban cook county, the thing of course is all the historical reasons why city of Chicago is empty, though as of late, Bronzeville and more south has not been so bad.
So many beautiful houses there that were/are still quite cheap, relatively and good property.
My family isn't too far away, and I had a few close friends there, so it worked out surprisingly well.
- One thing that I've picked up from a number of sources that isn't mentioned in the article, is that millennials entering the home buying phase of their lives as being a big reason why housing was primed to pop between 2020-2024. Basically demographics have played a huge part in this boom. - Most mortgages are actually in good shape from a paper perspective [1] - Most mortgages are 30-yr compared to the crazy ARM instruments [2]
My theory is that home prices will NOT drop, like in 2008, but rather will stabilize. Three reasons why: 1. Milliennials will keep overall demand up 2. Homebuilders will slow down on producing new inventory, and we're already at all time lows for inventory 3. Existing homeowners will be hesitant to sell because most are locked into a 30-yr with most likely a sub 2-3% mortgate
All of that, in theory, will result in less overall supply which will keep prices stable
[1] https://twitter.com/LoganMohtashami/status/15084587889693450...
[2] https://twitter.com/lenkiefer/status/1507870733615214598
2. We are close to all time highs in home construction pipeline, and the rate of starts is at 2000s bubble levels and increasing. We will likely eclipse the 70s building peak sometime this year.
3. If they aren't selling they also aren't buying (generally). Somebody choosing not to move due to low rate has no net effect on inventory
These narratives have been powerful in shaping the FOMO psychology though, despite data showing the exact opposite is true.
What's driving housing now is pure psychology, and low active listings (not low structural supply). The Fed will likely start selling MBS, driving rates to 6% or above to solve both of these.
Though the fact they even bought MBS for so long to begin with somewhat implies they don't care about creating a bubble in housing. Maybe they do nothing and let it ride
https://fred.stlouisfed.org/series/HOUST
i wouldn't expect this to level out or even decrease without a drop in prices, but what do i know
A neighbor sold his house recently, he said he had a half dozen offers in a week, 3 were over his asking price, 2 were all-cash with no contingencies.
I don't know how this market can be sustainable or how the average buyer can compete if they need a loan.
I want to build, I don't even know where to start and I don't have a super elastic budget.
Oh, and mortgages for construction are so much worse.
We really need to encourage people to build by having a streamlined process.