‘Housing in ‘07 wasn’t a bubble” is a true statement that almost no one believes
fullstackeconomics.com
fullstackeconomics.com
The housing market didn’t “snap back” rather two unprecedented tax payer stimulus packages totaling just shy of $2T were given to the banks to finance millions of foreclosure cases and allow the entire industry to consolidate. That $2T resulted in the longest bull market in history, as well as the biggest transfer/consolidation of wealth in history.
It was unprecedented until the “stimulus packages” during Covid which is probably closer to a total of $7-8T, so far, once the federal reserve leveraging is included. Once again the policy response during this crisis was designed to benefit corporations and the wealthy. One of my favorite things to highlight was that following the Fed receiving taxpayer funds to prop up the stock market Disney had their greatest single day stock gains in history all while every single theme park, hotel and cruise ship were indefinitely shutdown and every single movie production was indefinitely suspended.
The very same way people look back and excuse the banks for their culpability for the financial meltdown resulting in “the Great Recession”, and even more bizarrely argue to some extent that taxpayers should thank the banks for allowing the taxpayers to bail them out (ie finance their foreclosure cases and major bank acquisitions)…its clear the people have once again been conned by politicians and are stupid enough that we will be reading future articles about how 2020-20?? wasn’t a stock market bubble and wasn’t inflation and that the people will once again be thanking politicians and the federal reserve for robbing them.
This would seriously hamper COVID / airborne viruses.
Why worry about ventilation and masking - particularly in schools - when one could spend that time looking at data showing who is actually at risk, and how to protect them.
Spoiler: for this pandemic at least, the risk group simply isn't healthy children. Or indeed healthy young adults. Or maybe even anyone healthy under say 45[0]
Our 8 year old had a PCR-confirmed Covid infection three weeks ago, as far as we know that's the first case in our immediate family. He's not vaccinated.
For him, it represented a four-hour headache. No fever, no sore throat, no cough. He's finally been allowed to go back to school this week.
Isn't this why we developed vaccines? To reduce the risk of serious illness?
"Every year around 600,000 people die in the UK. The Imperial College team estimates that if the virus went completely unchallenged, around 80% of people would be infected and there would be around 510,000 deaths.
So, roughly speaking, we might say that getting COVID-19 is like packing a year’s worth of risk into a week or two. Which is why it’s important to spread out the infections to avoid the NHS being overwhelmed."[0]
Once we've vaccinated a large proportion of the at-risk groups, then the risk of overwhelming the hospitals drops. Then life can, and should, get back to normal.
[0] https://wintoncentre.maths.cam.ac.uk/news/how-much-normal-ri...
On the other hand I was also considering what our politicians did to the society keeping them locked up in their rooms and not training their immune systems on a regular basis which usually happens with normal interaction.
Ah yes, people are just flocking to buy roubles as an inflation hedge, and there's definitely no war on.
The US has just about 4 times more gold reserves than Russia and more than double that of Germany in 2nd.
Nowhere does it say that Russia has the largest gold reserves on the planet.
Meanwhile:
https://www.statista.com/statistics/267998/countries-with-th...
I'm a US/UK citizen, I'm not arguing a pro Russia position here just talking realpolitik and geo politics.
Here's a Russian position which arguably gives away that gold and currency control is central to their positions http://thesaker.is/natos-internal-gold-war/
There are endless articles elsewhere questioning whether there really is any gold in Fort Knox etc because gold reserves are the king in the geopolitical chess games
Now that we're down to claims about the US lying about its gold reserves I'm afraid I have to check out.
This only sounds meaningful when you take it out of context. Leading up to that it was quite clear the government had effectively mandated for Disney to stop doing business. One day a business, one day not. It was on a trajectory to zero.
It only had a good day after the government decided “maybe it will be less damaging to the economy to float all of the existing companies through this huge pause rather than let them all collapse and have everyone lose their retirement and their job simultaneously”.
The same for cruises, airlines, hotels, restaurants, museums, concert halls, doctors offices, etc. All sane businesses one day worthy of investment, the next day not.
There really aren’t parallels to what happened in 08 here. In 2008 it was a single sector imploding that happened to be the one with its tentacles wrapped around everything else. With Covid everything was failing because everything stopped.
Well leading up to 2008 the banks were making record profits and had record high stock prices. However, they were under funded, over leveraged and couldn’t absorb their losses.
Similarly, in 2020 nearly all publicly traded companies were trading at all time highs, but in reality they were all significantly overvalued and the businesses themselves were all significantly over leveraged.
You are focused on the difference in the cause of the losses, rather than the historic valuations completely detached from business fundamentals (i.e. the bubbles), and the governmental responses to prop up bubbles. Taxpayer funds shouldn’t have gone to financing foreclosures and acquisitions for failing banks and they shouldn’t have gone to the Fed to propping up businesses record high stock prices.
> “maybe it will be less damaging to the economy to float all of the existing companies through this huge pause rather than let them all collapse and have everyone lose their retirement and their job simultaneously”.
The irony is you are using the very same political justification for the government response to the banks in 2008, and it only highlights my point how people will be all to happy to say thank you for allowing us to bailout your failing business and return it to record high stock prices.
There is this inherent contradiction that people are angry that the money supply grows because they save, while themselves demanding high interest rates like 5% to let their money compound over time.
If you limit the money supply and demand high interest, that interest must circulate from lender back to the borrower. The money supply is $100. I lend out $100 and demand $105 back. The borrower pays me the full $100 back. Where does he get the $5 to pay interest? The easy answer is that I spend $5 of the money he paid to me. He then has $5 and pays off the entire loan.
What if I lend out the $5 to him instead? The money supply rose by $5. Letting money compound over time by reinvesting/lending the interest will let the money supply grow exponentially and in principle there is nothing wrong with that, if I, the lender, eventually spend off all the interest income I earned because then the whole thing settles and all debt including interest is gone.
Now, there is a problem here. Why doesn't that spending phase set in? Why does the money supply keep growing until the system collapses? Because of an artificial interest rate floor of 0% on cash. The saver has the option of refusing to lend out his money or spend it and wait until an inevitable recession sets.
During deflation, the value of money goes up. This is terrible for debt contracts. If you rented a Prius 2010 knowing you have to return Prius in the same condition but instead you return a 2020 Prius you would expect the rental company to compensate you for returning the car in an even better condition.
With debt it doesn't work that way, since you can just hold cash with 0% interest. Imagine if the car dealer had a <current_year> Prius that automatically upgrades to the latest year. You are expected to pay interest on top and bring a 2022 Prius because the dealership could just let the Prius sit in a garage and go up in value.
This is because of the inherent contradiction of being able to own a store of value. A store of value can only ever be a contract between two parties. The mythical self upgrading Prius doesn't exist in the real world. Someone has to promise to manufacture the 2020 Prius in exchange for you giving him the 2010 Prius. Deflation on a fixed debt contract is the equivalent of demanding a 2022 Prius when a 2020 Prius was agreed upon. The borrower never promised a 2022 Prius so it is only natural that he ends up defaulting through no fault of his own.
When's the last time a high yield savings account made 5%? Or even matched inflation?
People are angry that they are punished by thr fed for trying to save money for a rainy day.
Rainy day funds should approximately track inflation. There are plenty of assets that have been good havens over the past decade. It’s odd to expect real gains on a rainy day fund.
Because that is what happens with other countries. The only reason US gets a free pass is because the dollar is a global currency which is sought by everyone.
When the money supply increases in that way, while it does not immediately create inflation, as the new money will be stored in investments and those investments rising in value are not considered inflation, as soon as the down-turn occurs, that money, being liquid, becomes inflation.
So when you create money through artificially low interest rates that goes to rent-seeking, you are creating inevitable inflation in the future.
Though generally I don’t think it’s for a private entity such as the Federal Reserve to be given taxpayer money and have the power to increase the money supply, it makes a private bank a de facto 4th branch of government with powers to coin money reserved by the Constitution to the Government by the people for the people.
The fact that this debt isn't paid by us but rather by the working class, is how we get away with this scheme. After all, those who work for a living, those who spend almost all of their money, unable to save it for the sake of subjugating society, spending it just to live their life, using it as the medium of exchange so many postulate it to be, do not have any significant savings to speak of and would not significantly benefit from any reward that is proportional to how much they own.
I must remind everyone that the Greece financial crisis was actually a bank bailout program for German banks. After all, savings are the holy cow of the rich. If you take something away that didn't exist, in proportion to how much the real world lost, you are a communist.
If you can't touch the savings and the savings keep growing, the economy must grow in lock step with the savings. Endless growth is just a subsidy to endless savers since you can't tell them to stop.
Probably because of their massively successful streaming service that was perfectly placed to pick up the slack. They also have one of the deepest content libraries around so production stoppage hurts them less than competitors like Amazon, Netflix, AppleTV.
To drive it home, Disney had record revenue in 4Q2021, driven by streaming and parks revenue [1]. Maybe it’s you who had it wrong?
[1] https://www.marketwatch.com/story/disney-stock-soars-after-r...
You are cherry picking an article from Q42021 that references park revenue, whereas I gave a very specific example of their record single day gains in company history which occurred while the parks were closed in 2020.
As to Disney+ streaming service it launched in 2020 but the Disney+ lost $2.8B in fiscal 2020, the same period of time it’s parks were closed and park losses total about $7B, and yet during this period it saw it’s record single day stock price gains in history. That record day was a direct result of the Fed and taxpayer money, not record theme park revenue (it was record losses) nor Disney+ which was a brand new division and recording its own multibillion dollar losses.
At the time Disney+ was losing money, but the pandemic and the bailout were indicators that the steaming business would take off (it did). Their huge content backlog had them perfectly placed to manage a production shutdown. There’s also the 21st Century Fox acquisition that was Closed in 2019 and gave them more content.
If investors expected future earnings to grow more than current losses (which were already priced in by the market), then it isn’t wild for the stock to bounce. A year later, their earnings pretty much prove it.
We could also go into the calculations of why the value of recurring revenue (streaming subscribers) is much higher than the value of non-recurring revenue (park visits).
Well of course Disney future theme park earnings were going to increase from zero. You aren’t considering the actual E/P ratio.
Pre-Covid Disney both stock price was a at all time high and their E/P ratio was at an all time high (about 22, where usually an 18 is considered over priced).
Those “investors” you suggest were the Fed using taxpayer money buy and prop up the stock price. With the Fed money Disney stock price once again reached a new all time high price and a P/E ratio over 90, meaning the Fed was bailing out shareholders at a historic high of $90+ to $1 earned, where an average publicly traded company should be closer to 13-14.
This isn't how investors think. If you know that future earnings are going to increase from zero due to outside circumstances (COVID, in this case), why would you base your analysis on past earnings? The past earnings don't matter, especially when you admit that they were heavily influenced by COVID.
$1 of recurring revenue from subscriptions (Disney+) is worth more than $1 spent at a Disney theme park. The recurring revenue costs less to service and is more predictable going forward. This is why businesses (like Adobe, Apple, Disney, etc.) have been working to shift revenue towards subscriptions over one-time purchases.
> Those “investors” you suggest were the Fed using taxpayer money buy and prop up the stock price. With the Fed money Disney stock price once again reached a new all time high price and a P/E ratio over 90, meaning the Fed was bailing out shareholders at a historic high of $90+ to $1 earned, where an average publicly traded company should be closer to 13-14.
It feels like you are working backwards to try and find the nefarious actions you are so positive about. The Fed deciding to bailout companies and consumers obviously helped businesses (especially consumer facing businesses, like Disney). The entire stock market exploded when it was announced.
The P/E ratio of the entire S&P 500 spiked from around 20-25x to 40-45x due to Fed and Congressional actions [1]. Average publicly traded companies do not trade at 13-14x P/E, and low interest rates for decades have made that a fact. That said, Disney isn't a traditional company because their investments and growth in streaming make them look more like a growth stock. Which is, again, reinforced by their record revenue numbers.
Again Disney was double that at 90 after the FED began buying Disney stock/bonds using taxpayer funds and pumped it to an ATH.
> It feels like you are working backwards to try and find the nefarious actions you are so positive about.
It’s all public record, the stock was tanking, after the FED began to directly prop up Disney the stock price reached a new ATH in 2021 at which point executives/insiders, including the Chairman, began to sell sending the price downward from ATH and leaving the FED holding the bag. Despite your claims of Disney behind a growth stock the Chairman liquidated something like 50% of his holdings.
Anyway I’m not here to debate the merits of the Disney stock price. The FED shouldn’t be getting taxpayer funds much less buying Disney stock/bonds, it’s corporate welfare, and when the stock price is propped up to an ATH with taxpayer funds and the Chairman and other executives sell out it’s a golden parachute. Like I said people look back on 2008 and think taxpayers should thank the banks, and similarly people (presumably like you) will think taxpayers should thank companies like Disney that were bailed out by taxpayers.
This is false. There is no doubt that, while there was a short recession in early-mid 2001, there was a general economic expansion, not a recession, after that; to the extent that housing market was exploited to paper over something, it was the unusually top-loaded distribution of the benefits of that expansion, where the bottom 3 income quintiles and the fourth quintile was basically flat, with the gains concentrated in a fair small segment at the top, which it covered by (non-sustainably) paying for continued debt-fueled lifestyle improvements for groups that weren't seeing real income gains.
That’s one long sentence.
The thing is it’s impossible to decouple any economic expansion from 2000-2008 from the trillions of dollars that flooded into the economy during that period as a direct result of the artificial housing prices and newly available debt.
I agree with you though to the extent that any actual wealth that was generated was concentrated to the top, it always is. There hasn’t been real income gains for the working class in about 50 years, but the explosion in household and consumer debt in that time is incontrovertible from about $300B in 1970 to $11.5T in 2010.
https://www.nytimes.com/2005/08/08/opinion/that-hissing-soun...
"Then there are the numbers. Many bubble deniers point to average prices for the country as a whole, which look worrisome but not totally crazy. When it comes to housing, however, the United States is really two countries, Flatland and the Zoned Zone.
In Flatland, which occupies the middle of the country, it's easy to build houses. When the demand for houses rises, Flatland metropolitan areas, which don't really have traditional downtowns, just sprawl some more. As a result, housing prices are basically determined by the cost of construction. In Flatland, a housing bubble can't even get started.
But in the Zoned Zone, which lies along the coasts, a combination of high population density and land-use restrictions -- hence "zoned" -- makes it hard to build new houses. So when people become willing to spend more on houses, say because of a fall in mortgage rates, some houses get built, but the prices of existing houses also go up. And if people think that prices will continue to rise, they become willing to spend even more, driving prices still higher, and so on. In other words, the Zoned Zone is prone to housing bubbles."
Just ignore the first sentence in the article and the prognosis on a bubble popping messily....
Erdmann adds to the thesis in a very valuable way by pointing out that people move out Zoned zone to Phoenix and other US metros.
Just pity the countries that effectively don't have a Flatland, like Australia, the UK and NZ.
Everyone here lives in the capital cities, and last I looked there were almost no tech jobs at all further up the coast between Sydney and Brisbane.
I wonder if pandemic working from home is going to change this, some of our devs have already moved up the coast...
That stretch of coast has been seeing massive house price inflation recently as well, IIRC.
How do they do this and stay connected? I remember seeing a guy that did this in a van while subscribing to multiple wireless providers. But as far as I am aware Australia still doesn't have the best coverage, service and technology. Moreover, if you're going out more remote locations, I'm sure your connection options start to dwindle.
I'm sure Starlink (maybe oneweb too?) and the WFH movement is going to change this equation quite drastically.
They built like crazy and still had massive price inflation followed by a bubble popping, prices dropped almost 50% and vast swathes of empty houses remained for years and prices only recovered to the peak in the last year or two.
https://www.icij.org/investigations/fincen-files/a-kleptocra...
That is an interesting bit from the lined article:
"One of the biggest issues that the report cites is the use of geographic targeting orders as the U.S.’s primary tool to identify potential money laundering events. GTOs impose reporting requirements on real estate purchases, but only in narrowly targeted scenarios — large cash purchases by legal entities in specific geographic areas."
https://www.theguardian.com/money/2013/feb/20/cash-buyer-sol...
Now that's much more scrutiny than lenders were showing back in 2007. Back then, if you had cash in a bank account, all good.
In terms of laundering, it's basically passing money through enough legitimate transactions as to conceal the source. So let's say you have $1M in money from illegal activities. If you can get it into a foreign bank account, you could transfer it to the US, buy a house, sell 2 years later. If anyone asked where the money came from you've got a few years history of legitimate investments.
https://newrepublic.com/article/143586/trumps-russian-laundr...
Sorry, I missed out some more of this.
Erdmann divides US cities into Closed Access Cities (CACs), contagion cities (CCs) and Open Access Cities (OACs). The CACs were New York, Boston, the Bay Area and Los Angeles where building housing has become very difficult and where the prices are shooting up. The contagian cities were places that people who moved out of the closed access cities went to. These include Phoenix and Florida. The Open Access Cities were places like Houston, Atlanta and Dallas where sufficient housing for population increases was being built. Erdmann describes the CACs as having a chronic undersupply that has caused many people to move into the CCs. The OACs saw some ride and an increase in homebuilding but didn’t see nearly the drop in prices as the other types of cities.
Shut Out suggests that a reaction to the rise in housing prices that was occuring in CACs led to policy that brought up interest rates and caused prices in the CCs to drop which then led to a loss in confidence and a drop in housing prices across the board. Erdmann says that excess credit wasn’t the primary driver and points to the fact that the increase in US house prices was well underway before the bad loans came in.
From a review on Goodreads of Erdmann's book:
And the categorization seems "after the fact". I mean if you look at prices and then lump cities into categories, you're not really predicting anything.
In a normal market the investors would predict the price coming back down when the construction catches up so it would only go up a little bit, since most prospective buyers would e.g. rent until they could pay less for one of the new units. More to the point, the bank would predict that and not give you a loan that size.
Pre-2007, banks weren't doing that. They were giving loans to everybody regardless of creditworthiness or risk because they were buying credit default swaps which create moral hazard. So unsavvy borrowers overbid on existing properties about to revert to their construction cost and you got a bubble in a place you normally wouldn't.
Not to focus on one single point of your post, but Vegas is in fact nearing the point of having developed the easy area in the surrounding flatland of its valley, and is now beginning to abut the surrounding mountains (and federally owned land). Vast tracts of surrounding uninhabited land does not necessarily mean it is easily developed and habitable.
There's a Sveriges Riksbank Prize in Memory of Alfred Nobel.
And if we really want to go full pedant, the award isn't called anything in English at all, the real name is the "Sveriges riksbanks pris i ekonomisk vetenskap till Alfred Nobels minne"
But pedantry is silly, right?
Anyway, even the Nobel Foundation explicitly says it isn't a Nobel Prize:
> Not a Nobel Prize
> The prize in economic sciences is not a Nobel Prize.
I think that point about the nature of the price doesn't diminish the point that was being made. As much as it is a call to authority, weight of opinion of someone rewarded with that price is bigger than random voice on the internet.
That being said I think this thread starting with unsubstantiated criticism of Paul Krugman ideas/opinions is not constructive and rather useless.
> Not a Nobel Prize
> The prize in economic sciences is not a Nobel Prize.
Yes, you’re technically correct. But also, you missed the point and are being self-defeatingly pedantic. The economics prize is valued for all the reasons the Nobel prizes are; they carry similar prestige and are thus used interchangeably.
Henry Kissinger won the Nobel peace prize.
Sometimes they get it wrong.
How long has it been since a nobel prize been anything more than a prize for being an influential leftist?
He's more often worth citing than other of the standard talking heads of economics like Greg Mankiw.
Only study that attempted to quantify pundit accuracy (I know about) found out that Krugman was the most accurate public pundit.
source: Hefferman, S., Klondar, E., & Tummarello, K. 2011. Are talking heads blowing hot air? An analysis of the accuracy of forecasts in the political media.
And this is the driving force behind those cities going bankrupt, they're easy to build but not sustainable in the long term: https://www.youtube.com/watch?v=7Nw6qyyrTeI
Ha! I see your "UK does not have flatlands" and I raise you Norfolk. V flat indeed
Noel Coward and his fucking quips.
However, the fens is a sinking bog, so not great for building on, especially as its in the middle of fucking nowhere and 180 degrees of depressive grey most of the time.
but but but, its a good quote.
The Two-Income Trap: Why Middle-Class Mothers and Fathers Are Going Broke (2004) https://en.wikipedia.org/wiki/The_Two-Income_Trap
The article seems to start from a misleading claim, one that misses a crucial part of the picture, and that is much easier to refute than the full story. The data is still super interesting to see.
Mortgages work differently in the fastest-rising areas of the US than most anywhere else, in that a borrower can have no equity or negative equity in the home… and just hand back the keys.
In the UK this involves a complex and lengthy bankruptcy proceeding. Honestly I think the US way is objectively better, but it massively changes the outcomes of how long someone will stay in a home that’s become a bad investment.
The article is also looking at the wrong numbers for rents. How much rents have risen is far less relevant than how many rent starts there are over mortgage starts. The first statistic tells you how much people are having to pay to live, the second tells you if there’s really a shortage of homes or not.
Some countries have implemented additional taxes on non-primary homes since the crash, but to my knowledge they’re not particularly punitive. I think this tax really is the solution (e.g. 5% value of the home in landlord tax per year).
Small detail but the wording here implies a causation, that it was the home buyers who were the makers of the crisis.
Whereas we now have ample evidence that it was the real estate companies and mortgage lenders who when faced with free money, became predatorial of people who had no capacity or understanding of the financials of becoming a home owner.
We can always argue that these were adults who have taken their decisions but again many of these people were promised pie in the sky and they believed it.
“No capacity or understanding of the financials” makes it sound like these fully grown functioning adults had a learning disability. These people had access to the internet, books, libraries, financial services, and more. If these people were ignorant of the true costs it was willful ignorance.
The problem is that those lenders weren't responsible, tax payers and defrauded home buyers were cleaning up their mess.
Of course there were many (if not most) individuals that were unfortunately taken advantage of in this manner. But anecdotally and for what it's worth, all of the people I know impacted by the crisis were educated, financially savvy and secure individuals.
For them it wasn't a matter of owning a house or being homeless, no reason to lie on a mortgage application just to have a roof over their heads. They had good incomes and credit history. They could be approved without having to inflate applications or go with the ARM-heavy options. Instead they chose the interest-only, deluxe option.
I recall having conversations with many of these individuals about how they could afford these amazing places (along with the new convertible BMW) and how they tried to convince me that the interest-only option combined with increasing equity and the historical trend of property prices, yada... was a wise financial decision. How property is an investment, and they plan to eventually use their equity to buy more property. So on and so on. I can't remember all of the details bc it didn't really seem to make sense and sounded way too risky and optimistic.
What I do remember is being completely crushed hearing and seeing all of this and knowing I was priced out of the market unless I took on a similarly risky position. I accepted the idea that I would never be able to afford a house.
I was even more upset when I saw the way that most of these individuals were "bailed out". Sure they lost their homes, but at least they weren't financially ruined.
They have since improved their credit-worthiness and seemingly made better financial decisions, but my point is financially healthy individuals who knew better contributed to this crisis as well. They knew that the income they put on the application was inflated. They knew that the interest rates could change in the future and only paying interest was risky. They knew that a smaller, less expensive house was good enough. They knew that also buying that luxury car was exposing them even more.
The folk memory describes the cause as banks loaning money to people who patently couldn't afford it, mixing those loans up with mortgages that had passed sensible credit checks. They then homogenised shit mix loans as high quality bonds.
All was fine, until the foreclosing happened (repossessions), suddenly the bond repayments weren't as good, and pop, everyone started questioning how good their investments were.
sure it was triggered by the american housing market, but it wasn't really a bubble, it was large scale fraud, combined by hubris and a ratings system that was/is corrupt of crushingly incompetent
Really? It seems pretty obvious to me that we're in the middle of a huge bubble. The problem is the bubble may not pop for decades because propping up the bubble is government policy at every level from federal to state to local. And if they ever stop, tons of people will be totally screwed. Never mind that even more people are getting screwed by the bubble...
And the fact that they use Canada as an example of a country "that never saw a housing crash" is kind of funny considering Canada median national housing prices is almost double that of the US now.
I would agree that the US is likely not in a bubble now, but Canada sure as hell is.
Canada's housing market will see a roll back in pricing (lets say at an extreeme 20-30%) however that really is only pushing pricing back 1-2 years max (possibly not even that).
Prior to the 2008 crash, the US' "fundamentals of supply and demand" were still firmly in place as well. It's just that demand was massively juiced by easy money and an expectation that "housing only goes up" (speculation).
Clearly not all of Canada is in a bubble (Toronto, but even more, Vancouver, has always been expensive), but when a house in Brampton, Ontario (50 km from downtown Toronto, 45 to 75 minute commute with traffic) goes from $890,000 to $2.2M in 20 months, that's speculation.
When in Barrie, Ontario (2hr commute, 120 km away) you'd be hard pressed to find a home for under $1M, that makes zero sense.
And when small town BC (<20,000 population) has houses worth $1M but no industry or well paying jobs, that's a bubble.
Those numbers are more inflated than the peak 2007 bubble in the US, despite lower incomes in Canada. Houses in Las Vegas were bubblicious when they hit $500-$600k, let alone $2M.
I agree that major urban cores like Toronto and Vancouver might only see a 20-30% correction (just like San Francisco and New York in 2008), but other places are in for a world of hurt (similar to Las Vegas (-66%, https://fred.stlouisfed.org/series/LVXRNSA) or Miami (-55%, https://fred.stlouisfed.org/graph/?g=8hD)).
And unlike the US, many mortgages are recourse mortgages - you don't just walk away, you're on the hook for the full mortgage if after selling, the proceeds doesn't cover the debt. Plus Canadians can't lock in interest rates (and monthly payments as well) for 30 years like Americans - so less ability to just "ride it out until prices come back".
Canadians have much more risk exposure when home prices drop than Americans.
The places where people are really going to take a hit in Canada is in places like the Maritimes or smaller cities much further away from the major metros that people fled to during the pandemic and WFH being the fad. Tons of folks sold their Toronto / Vancouver homes and bought homes in these area's for essentially cash and are mortgage free but they drove the prices way up and anyone native to those places who bought a house and had to use a mortgage are going to be in a world of hurt when those prices fall back down hard over the next 2-5 years.
But I think another big factor is that we are measuring inflation wrong. I think the various QE had the same effect than any other money printing in history, to drive prices up. But I think the way it was introduced (directly in the financial system, rather than paying people with it), meant that the inflation was localised into financial assets, and to the cost of anyone benefiting from higher financial assets (VC, asset and hedge fund managers, etc). So stock prices skyrocketed, as prime real estate prices, college tuitions, expensive restaurants, etc. But that's not captured by the various CPI indices.
Then came covid, with its new, massive rounds of QE. But this time the money printing was distributed to ordinary citizens through various furlough schemes, financed by deficits, pretty much directly financed by the central bank. And oh surprise, about a year later we see inflation jumping up massively.
So it may be that these inflation adjusted real estate prices charts aren't adjusted as they should.
Those were the assets that were significantly over-priced. Or one could argue that in '07 they were correctly priced given the questionable assumption that home values would only increase.
Home values themselves were high but definitely not in bubble territory. It was the derivatives that amplified those high home values. Specifically mortgages that couldn't be paid unless home values continued to increase. That kind of asset is very bubbly, an asset that only has value under a certain transient conditions, and the rating agencies marked them as relatively safe.
the pop came from the supply side, tons of mortgage companies selling now-cheap houses trying to claw back their money from bad loans.
they patched the hole though, and now mortgages are larger than ever. great news for the banks and existing homeowners, bad news for anyone else.
Like aeternum said, it was only viable as long as prices kept increasing. Any kind of shock to the system would cause a wave of defaults.
And because of the bundling and spreading out of the CDOs based on these unsound mortgages, it essentially infected the entire system, meaning that that wave of defaults wouldn't just affect the real estate lending sector.
So, sure, in an imaginary world where house prices could monotonically increase forever, we could choose not to call this a bubble. But it really is just that: imaginary.
I want to emphasize that: if you're a median household income, middle class family moving to Phoenix, you can no longer afford homes here. There's zero inventory. ARMLS listings will produce nothing.
That's not an exaggeration. After breaking down the cost of a mortgage, insurance, property tax, cost of food based on USDA Cost of Food reports, median car payments, bills and utilities, and additional monthly expenditures, there's no way the math works out.
Phoenix is now Los Angeles. Look somewhere else. Phoenicians are.
It seems the median list price is 1/5th of bay area prices.
Each https://en.wikipedia.org/wiki/Metropolitan_statistical_area in the US should have a graph per major downtown, for suburbs within a given rush hour commute distance (1 hour, 2 hour, 3 hour) and then each state for outlying areas (anything outside of another graph).
Yes. Many people think we're in the middle of a much larger bubble across the whole unsustainable economy.
This seems to have actually happened. Consider this simple recent example in Boston:
https://www.universalhub.com/2022/board-rejects-apartment-bu...
People protested to stop twenty-eight units from being built next to a train station on a commercial lot. The zoning board had a 3-2 vote, with three in favor of the development against two who opposed it. However, the law is such that a 3-2 vote is not enough to approve it, so the owner was prevented from building more housing.
Multiple levels of government prevent housing from being created and this issue clearly cascades throughout the entire country.
The reason I’m able to actually buy one now is because my salary rose faster than the housing prices, but the prices in that location have still risen by about 800% in the past 30 years.
There are PLENTY of sources documenting the the faulty assumptions and collective delusion that led to the 2008 mortgage crisis happen. Blaming the media for the panic without acknowledging the very real and very large underlying issues sound like post hoc self justification.