Anonymous wrote:You think Jerome Powell has the nerve to shake up the housing market? No way. He was supposed to be a hardcore right wing rates guy but dropped to zero so fast it made your head spin. Then a few tweets from Trump and he didn’t touch rates for two years. He will raise twice to three times and that’s it.
He’s not going to do it on purpose. Trump wasn’t facing double-digit inflation, and the opposite is happening here. Biden is screaming at Powell to get inflation under control before the mid-term elections. The concern is that we’re already in the situation we were in in the early 80’s, when the Fed waited so long to act, that by the time Volcker did what he had to do, the cure was very painful.
Interest rates alone aren’t what is worrying. The amount of QE the Fed has to unwind is unprecedented. This is an oversimplification, but the problem is that the Fed has been buying up to $120 billion worth of Mortgage backed securities and Treasuries a month for years. That was $$ off the books of the banks, which allowed them to loan more $$. In May, they’re going to start letting $95 billion worth of those roll off as they mature. It’s not clear that they’ll meet that target, nor that simply letting the bonds roll off will do the trick. They may have to actively sell bonds, and no one has any idea what impact that will have on the loan market, other than not good. Banks will buy those bonds, but that will entail using cash that then won’t be available to loan out as mortgages.
Here’s the doomer perspective, which I don’t necessarily subscribe to, but it’s not outside the realm of possibility:
I didn’t say I agree with them, but I give them credit for being consistent. They predicted that the unprecedented levels of QE would lead to inflation and an unsustainable boom in housing prices (check) and that it would become dangerous when it eventually had to be unwound (which is where we are now). Their position is that it was like a sugar high for the economy, and eventually the crash will come (and they weren’t alone in that, this has been openly discussed for years). We’re going from the Fed buying $40 billion a month to trimming $95 billion a month, and it’s not clear that will be enough to tame inflation. It may be that the Fed can navigate unloading $2.6 trillion in bonds (25% of the mortgage market, for perspective) without harming the market, but that entails a lot of finger crossing and hopium, and is not something that I’m willing to bet my own money on.
Consistent? Broke clock you mean. There is no proof the boom in housing prices is unsustainable, if you mean the prices will hoold. I don’t think any one is advocating that prices will keep rising at the same level, so you would be arguing against a straw man.
And to be honest, they and many others have been warning of inflation for DECADES. Yes it is here. Mostly from supply chain disruptions, but it is up to the Fed to help halt it.
If you think supply chain disruptions are our only problem, I’m not taking market advice from you.
Omg you twit. Demand that exceeds supply is what drives inflation. The vast majority of the injected QE went to rents and larg kk er mortgages. Wages only very recently started rising, lagging inflation so this can’t be the driver. So what has caused the wide spread rise in food, fuel, commodities ?
More clueless crap.
Yes, Deman has exceeded supply since the pandemic started. But the question is WHY? Why wasn't the demand there before? It's not like people suddenly went overnight "OMG!! I gotta buy a house NOW!". But wait...that is EXACTLY what happened. Again, the question is WHY? Answer (in no particular order):
- Eviction Moratorium - When you allow people to live rent free for over 2 years, that's real money/savings that add up. Who got screwed? Landlords.
- Freeze on student loan payments - When you allow people to not pay $1000-$2000 per month, that they are supposed to AND you give them indications that that they may never have to pay it back, that's real money/savings that add up.
- Child Credit - Suddenly people with kids are getting free money for just having kids.
- Enhanced unemployment benefits (including federal and state/local) - When you pay people more to NOT work, vs earning a living, their cost of living drops quite low, and they suddenly have more disposable income.
- PPP loans - I won't even go there..what a cluster$#@ck.
And these are just off the top of my head, and they ALL happened in the last two years. Well, guess what? That most certainly increases demand [b]artificially, for a short term[/b]. That demand is NOT so called milliners going, "ha! now I have kids and I have a good job, gotta go out and buy a house absolutely right NOW!". That's BS and any sane person (not too many here) knows it.
Well, all those "extraordinary" programs from the last 2 years have either already ended or will be ending shortly. AND given the rise in "real" inflation (i.e. cost of everyday goods), the Fed is on a warpath to raise interest rates at the fastest pace in the last 40 years. You REALLY think that will not end up in demand destruction on almost every front, including housing/RE?? If you think so, I got a bridge somewhere...
If DEMAND is what is causing prices to go exponential, then the demand DESTRUCTION is coming. Doesn't happen overnight, but it's coming, if not already being felt in RE already (it is). And RE is about the worst investment if hedging against inflation is your objective. No other asset class has a ~1.5% (property taxes/insurance/maintenance) carrying cost every YEAR. You could have bought any number of other investments (interest rate swaps, Eurodollar options, TIPS) and you'd be perfectly hedges against inflation without that huge carrying cost.
If the above makes your head spin, you have no business commenting on the state of markets/asset classes.
Alternatively, a more simple explanation: demographic boom as Millennial generation enters their prime child rearing years and putting very high demand for SFHs near job centers. A lost decade of development, particularly in family-sized homes, as part of the hangover of the Financial Crisis. And Boomers living in under-utilized real estate as they are not downsizing at rates previously predicted.
Nope. There's no "alternatively".
No demographic boom develops this fast. Millennials where there before the pandemic, are there now, and will be growing older as we speak. Their financial situation did not change OVERNIGHT or within the last 2 years. There's no "cliff" where suddenly all millennials went... ^read above.
This is what I meant by "sane". People are free to rationalize things however they want, nobody's stopping them from that. But when they start offering misguided, uninformed opinions on things that they shouldn't, is when I start getting frustrated about the BS being spewed. I do the above for a living, am very successful at it, and have access to information and markets that the average person does not. I can SEE markets reacting to these things on short/medium term basis. Longer term is always about predictions, and nobody is good at it, including me.
The ONLY reason housing/RE has such a big presence from a financial perspective, is not because "You need a place to live", it's because there are almost no other asset classes (for the average person) where you can leverage your (rather small) investment 20x or even unlimited (0% down). It's LEVERAGE that causes distortions in this space, not DEMAND.
Ask yourself this. When you get a 30 year fixed mortgage with 5% down, who da $#@! is lending you the other 95% at a pitiful rate of under 3% for THIRTY years. Somebody has to put up that money, right? Otherwise you'd never be able to get a mortgage. That's the Bond market. And the Fed controls it, is not outright own it (in Japan's case). Why would somebody lend you money at 3% for THIRTY years, when a 10Y treasury bond now pays 5%?? And that "LENDER OF LAST RESORT", i.e. the Fed is TELLING you (and you're not listening) that they are cutting back, if not stopping it altogether.
THINK. (Not too many people do that)
+1 the idea that a bunch of “millennials” were homeless before March 2020, or were living with their parents even though they could afford it and are now clamoring to pay 40% more for a house, is ludicrous. Nor did millions of houses just stop existing.
That fact is, demand increased greatly because conditions to buy vs the other options were perceived as excellent in 2020. Extremely low interest rates (which very importantly created a whole new class of mom and pop investors), stimulus (student loan pause and mortgage moratoriums, child tax credits, checks for thousands of dollars, PPP loans, etc) wanting to buy a second home or moving to a low COL area because of WFH, etc. That whipped the media into a frenzy and created a FOMO atmosphere. Problem is, those factors are gone now and people aren’t so much fearing of missing out.
The good news is that the crazy rush didn’t last that long, so most people who bought before 2020 will still be very happy to sell their house for a tidy profit even if prices drop 20-30%. The only people requiring these crazy prices in the face of much lower demand will be people holding the bag of 2020-2021.
Back in Mar 2020, MOST urban millennials were living in condos, maybe townhouses. Professionals were just starting to have kids as they established careers, paid off student debt, and gotten married. They may have a baby, and planned to eventually move to the SFH in the burbs, but they wanted to be able to walk to bars and coffee shops and dog parks and artisanal pacifier shops. Then pandemic hits, and WFH with their spouse and dog and maybe a baby clinches it -- they need a proper SFH NOW. And thus began the great Millenial exodus (which was kinda of already underway, but this poured gasoline on it).
Admittedly my sample is skewed but this rings true for me because it describes me and literally all of my friends. At least in my circles, the exodus continues…
PP here. And you and all of your friends are perfectly happy paying these absurdly high and superficially elevated prices, because...you just HAD to get out of the urban area/city??
if so, you're going to be in world of hurt financially, shortly. You're not just paying a high price to acquire an asset, you're gonna be paying elevated property taxes, home owners insurance, and unless you paid cash (which I promise you, none of you did) one lil blip in prices, and you're upside down on the asset. Sure, you may not have to sell, but you're continuing to pay for an asset (with interest) that is diminishing in value. Yes, I said diminishing in value, because unless the "Greater Fool Theory" holds true, the writing is on the wall. i.e. The Fed's wall. They are TELLING you (and you're not listening).
This is not unfounded doom and gloom, this is literally the markets in action, telling you what's coming.
Eh. Maybe. I think the point PPs and I are trying to make is that pre-pandemic the millennial generation was just getting into the swing of child bearing/raising into the post-toddler years and was also delaying the move to the suburbs longer than previous generations, but the pandemic changed that and so now you have the demographics of the largest generation all starting to swell toward elementary aged kids plus all ceasing with the delay to the move to the suburbs. So, demand is robust enough to withstand some headwinds….
"Eh. Maybe" - Seriously? That's all you can come up with?
Again, demographic changes don't happen overnight or within two years. They are a slow moving and happen over time. I'm not arguing with your premise that the millennial generation is reaching the household formation stage. What I'm arguing is that unless they are dumb %#cks, anybody sane would evaluate the current frenzy in the RE markets with an analytical frame of mind. Houses are "Need a place to live", but they are never "Need a place to live RIGHT $#@cking NOW". That's absurd and you know it.
Again, you can rationalize it however you want, that's your prerogative, but spewing an opinion that "So, demand is robust enough to withstand some headwinds…." is nucking futs, when you're not qualified to do so. I am, you're not.
Anonymous wrote:You think Jerome Powell has the nerve to shake up the housing market? No way. He was supposed to be a hardcore right wing rates guy but dropped to zero so fast it made your head spin. Then a few tweets from Trump and he didn’t touch rates for two years. He will raise twice to three times and that’s it.
He’s not going to do it on purpose. Trump wasn’t facing double-digit inflation, and the opposite is happening here. Biden is screaming at Powell to get inflation under control before the mid-term elections. The concern is that we’re already in the situation we were in in the early 80’s, when the Fed waited so long to act, that by the time Volcker did what he had to do, the cure was very painful.
Interest rates alone aren’t what is worrying. The amount of QE the Fed has to unwind is unprecedented. This is an oversimplification, but the problem is that the Fed has been buying up to $120 billion worth of Mortgage backed securities and Treasuries a month for years. That was $$ off the books of the banks, which allowed them to loan more $$. In May, they’re going to start letting $95 billion worth of those roll off as they mature. It’s not clear that they’ll meet that target, nor that simply letting the bonds roll off will do the trick. They may have to actively sell bonds, and no one has any idea what impact that will have on the loan market, other than not good. Banks will buy those bonds, but that will entail using cash that then won’t be available to loan out as mortgages.
Here’s the doomer perspective, which I don’t necessarily subscribe to, but it’s not outside the realm of possibility:
I didn’t say I agree with them, but I give them credit for being consistent. They predicted that the unprecedented levels of QE would lead to inflation and an unsustainable boom in housing prices (check) and that it would become dangerous when it eventually had to be unwound (which is where we are now). Their position is that it was like a sugar high for the economy, and eventually the crash will come (and they weren’t alone in that, this has been openly discussed for years). We’re going from the Fed buying $40 billion a month to trimming $95 billion a month, and it’s not clear that will be enough to tame inflation. It may be that the Fed can navigate unloading $2.6 trillion in bonds (25% of the mortgage market, for perspective) without harming the market, but that entails a lot of finger crossing and hopium, and is not something that I’m willing to bet my own money on.
Consistent? Broke clock you mean. There is no proof the boom in housing prices is unsustainable, if you mean the prices will hoold. I don’t think any one is advocating that prices will keep rising at the same level, so you would be arguing against a straw man.
And to be honest, they and many others have been warning of inflation for DECADES. Yes it is here. Mostly from supply chain disruptions, but it is up to the Fed to help halt it.
If you think supply chain disruptions are our only problem, I’m not taking market advice from you.
Omg you twit. Demand that exceeds supply is what drives inflation. The vast majority of the injected QE went to rents and larg kk er mortgages. Wages only very recently started rising, lagging inflation so this can’t be the driver. So what has caused the wide spread rise in food, fuel, commodities ?
More clueless crap.
Yes, Deman has exceeded supply since the pandemic started. But the question is WHY? Why wasn't the demand there before? It's not like people suddenly went overnight "OMG!! I gotta buy a house NOW!". But wait...that is EXACTLY what happened. Again, the question is WHY? Answer (in no particular order):
- Eviction Moratorium - When you allow people to live rent free for over 2 years, that's real money/savings that add up. Who got screwed? Landlords.
- Freeze on student loan payments - When you allow people to not pay $1000-$2000 per month, that they are supposed to AND you give them indications that that they may never have to pay it back, that's real money/savings that add up.
- Child Credit - Suddenly people with kids are getting free money for just having kids.
- Enhanced unemployment benefits (including federal and state/local) - When you pay people more to NOT work, vs earning a living, their cost of living drops quite low, and they suddenly have more disposable income.
- PPP loans - I won't even go there..what a cluster$#@ck.
And these are just off the top of my head, and they ALL happened in the last two years. Well, guess what? That most certainly increases demand [b]artificially, for a short term[/b]. That demand is NOT so called milliners going, "ha! now I have kids and I have a good job, gotta go out and buy a house absolutely right NOW!". That's BS and any sane person (not too many here) knows it.
Well, all those "extraordinary" programs from the last 2 years have either already ended or will be ending shortly. AND given the rise in "real" inflation (i.e. cost of everyday goods), the Fed is on a warpath to raise interest rates at the fastest pace in the last 40 years. You REALLY think that will not end up in demand destruction on almost every front, including housing/RE?? If you think so, I got a bridge somewhere...
If DEMAND is what is causing prices to go exponential, then the demand DESTRUCTION is coming. Doesn't happen overnight, but it's coming, if not already being felt in RE already (it is). And RE is about the worst investment if hedging against inflation is your objective. No other asset class has a ~1.5% (property taxes/insurance/maintenance) carrying cost every YEAR. You could have bought any number of other investments (interest rate swaps, Eurodollar options, TIPS) and you'd be perfectly hedges against inflation without that huge carrying cost.
If the above makes your head spin, you have no business commenting on the state of markets/asset classes.
Alternatively, a more simple explanation: demographic boom as Millennial generation enters their prime child rearing years and putting very high demand for SFHs near job centers. A lost decade of development, particularly in family-sized homes, as part of the hangover of the Financial Crisis. And Boomers living in under-utilized real estate as they are not downsizing at rates previously predicted.
Nope. There's no "alternatively".
No demographic boom develops this fast. Millennials where there before the pandemic, are there now, and will be growing older as we speak. Their financial situation did not change OVERNIGHT or within the last 2 years. There's no "cliff" where suddenly all millennials went... ^read above.
This is what I meant by "sane". People are free to rationalize things however they want, nobody's stopping them from that. But when they start offering misguided, uninformed opinions on things that they shouldn't, is when I start getting frustrated about the BS being spewed. I do the above for a living, am very successful at it, and have access to information and markets that the average person does not. I can SEE markets reacting to these things on short/medium term basis. Longer term is always about predictions, and nobody is good at it, including me.
The ONLY reason housing/RE has such a big presence from a financial perspective, is not because "You need a place to live", it's because there are almost no other asset classes (for the average person) where you can leverage your (rather small) investment 20x or even unlimited (0% down). It's LEVERAGE that causes distortions in this space, not DEMAND.
Ask yourself this. When you get a 30 year fixed mortgage with 5% down, who da $#@! is lending you the other 95% at a pitiful rate of under 3% for THIRTY years. Somebody has to put up that money, right? Otherwise you'd never be able to get a mortgage. That's the Bond market. And the Fed controls it, is not outright own it (in Japan's case). Why would somebody lend you money at 3% for THIRTY years, when a 10Y treasury bond now pays 5%?? And that "LENDER OF LAST RESORT", i.e. the Fed is TELLING you (and you're not listening) that they are cutting back, if not stopping it altogether.
THINK. (Not too many people do that)
+1 the idea that a bunch of “millennials” were homeless before March 2020, or were living with their parents even though they could afford it and are now clamoring to pay 40% more for a house, is ludicrous. Nor did millions of houses just stop existing.
That fact is, demand increased greatly because conditions to buy vs the other options were perceived as excellent in 2020. Extremely low interest rates (which very importantly created a whole new class of mom and pop investors), stimulus (student loan pause and mortgage moratoriums, child tax credits, checks for thousands of dollars, PPP loans, etc) wanting to buy a second home or moving to a low COL area because of WFH, etc. That whipped the media into a frenzy and created a FOMO atmosphere. Problem is, those factors are gone now and people aren’t so much fearing of missing out.
The good news is that the crazy rush didn’t last that long, so most people who bought before 2020 will still be very happy to sell their house for a tidy profit even if prices drop 20-30%. The only people requiring these crazy prices in the face of much lower demand will be people holding the bag of 2020-2021.
Back in Mar 2020, MOST urban millennials were living in condos, maybe townhouses. Professionals were just starting to have kids as they established careers, paid off student debt, and gotten married. They may have a baby, and planned to eventually move to the SFH in the burbs, but they wanted to be able to walk to bars and coffee shops and dog parks and artisanal pacifier shops. Then pandemic hits, and WFH with their spouse and dog and maybe a baby clinches it -- they need a proper SFH NOW. And thus began the great Millenial exodus (which was kinda of already underway, but this poured gasoline on it).
Admittedly my sample is skewed but this rings true for me because it describes me and literally all of my friends. At least in my circles, the exodus continues…
PP here. And you and all of your friends are perfectly happy paying these absurdly high and superficially elevated prices, because...you just HAD to get out of the urban area/city??
if so, you're going to be in world of hurt financially, shortly. You're not just paying a high price to acquire an asset, you're gonna be paying elevated property taxes, home owners insurance, and unless you paid cash (which I promise you, none of you did) one lil blip in prices, and you're upside down on the asset. Sure, you may not have to sell, but you're continuing to pay for an asset (with interest) that is diminishing in value. Yes, I said diminishing in value, because unless the "Greater Fool Theory" holds true, the writing is on the wall. i.e. The Fed's wall. They are TELLING you (and you're not listening).
This is not unfounded doom and gloom, this is literally the markets in action, telling you what's coming.
Eh. Maybe. I think the point PPs and I are trying to make is that pre-pandemic the millennial generation was just getting into the swing of child bearing/raising into the post-toddler years and was also delaying the move to the suburbs longer than previous generations, but the pandemic changed that and so now you have the demographics of the largest generation all starting to swell toward elementary aged kids plus all ceasing with the delay to the move to the suburbs. So, demand is robust enough to withstand some headwinds….
"Eh. Maybe" - Seriously? That's all you can come up with?
Again, demographic changes don't happen overnight or within two years. They are a slow moving and happen over time. I'm not arguing with your premise that the millennial generation is reaching the household formation stage. What I'm arguing is that unless they are dumb %#cks, anybody sane would evaluate the current frenzy in the RE markets with an analytical frame of mind. Houses are "Need a place to live", but they are never "Need a place to live RIGHT $#@cking NOW". That's absurd and you know it.
Again, you can rationalize it however you want, that's your prerogative, but spewing an opinion that "So, demand is robust enough to withstand some headwinds…." is nucking futs, when you're not qualified to do so. I am, you're not.
To answer the other PP's question: yeah, this person is definitely getting off on this. Yikes!
Anonymous wrote:You think Jerome Powell has the nerve to shake up the housing market? No way. He was supposed to be a hardcore right wing rates guy but dropped to zero so fast it made your head spin. Then a few tweets from Trump and he didn’t touch rates for two years. He will raise twice to three times and that’s it.
He’s not going to do it on purpose. Trump wasn’t facing double-digit inflation, and the opposite is happening here. Biden is screaming at Powell to get inflation under control before the mid-term elections. The concern is that we’re already in the situation we were in in the early 80’s, when the Fed waited so long to act, that by the time Volcker did what he had to do, the cure was very painful.
Interest rates alone aren’t what is worrying. The amount of QE the Fed has to unwind is unprecedented. This is an oversimplification, but the problem is that the Fed has been buying up to $120 billion worth of Mortgage backed securities and Treasuries a month for years. That was $$ off the books of the banks, which allowed them to loan more $$. In May, they’re going to start letting $95 billion worth of those roll off as they mature. It’s not clear that they’ll meet that target, nor that simply letting the bonds roll off will do the trick. They may have to actively sell bonds, and no one has any idea what impact that will have on the loan market, other than not good. Banks will buy those bonds, but that will entail using cash that then won’t be available to loan out as mortgages.
Here’s the doomer perspective, which I don’t necessarily subscribe to, but it’s not outside the realm of possibility:
I didn’t say I agree with them, but I give them credit for being consistent. They predicted that the unprecedented levels of QE would lead to inflation and an unsustainable boom in housing prices (check) and that it would become dangerous when it eventually had to be unwound (which is where we are now). Their position is that it was like a sugar high for the economy, and eventually the crash will come (and they weren’t alone in that, this has been openly discussed for years). We’re going from the Fed buying $40 billion a month to trimming $95 billion a month, and it’s not clear that will be enough to tame inflation. It may be that the Fed can navigate unloading $2.6 trillion in bonds (25% of the mortgage market, for perspective) without harming the market, but that entails a lot of finger crossing and hopium, and is not something that I’m willing to bet my own money on.
Consistent? Broke clock you mean. There is no proof the boom in housing prices is unsustainable, if you mean the prices will hoold. I don’t think any one is advocating that prices will keep rising at the same level, so you would be arguing against a straw man.
And to be honest, they and many others have been warning of inflation for DECADES. Yes it is here. Mostly from supply chain disruptions, but it is up to the Fed to help halt it.
If you think supply chain disruptions are our only problem, I’m not taking market advice from you.
Omg you twit. Demand that exceeds supply is what drives inflation. The vast majority of the injected QE went to rents and larg kk er mortgages. Wages only very recently started rising, lagging inflation so this can’t be the driver. So what has caused the wide spread rise in food, fuel, commodities ?
More clueless crap.
Yes, Deman has exceeded supply since the pandemic started. But the question is WHY? Why wasn't the demand there before? It's not like people suddenly went overnight "OMG!! I gotta buy a house NOW!". But wait...that is EXACTLY what happened. Again, the question is WHY? Answer (in no particular order):
- Eviction Moratorium - When you allow people to live rent free for over 2 years, that's real money/savings that add up. Who got screwed? Landlords.
- Freeze on student loan payments - When you allow people to not pay $1000-$2000 per month, that they are supposed to AND you give them indications that that they may never have to pay it back, that's real money/savings that add up.
- Child Credit - Suddenly people with kids are getting free money for just having kids.
- Enhanced unemployment benefits (including federal and state/local) - When you pay people more to NOT work, vs earning a living, their cost of living drops quite low, and they suddenly have more disposable income.
- PPP loans - I won't even go there..what a cluster$#@ck.
And these are just off the top of my head, and they ALL happened in the last two years. Well, guess what? That most certainly increases demand [b]artificially, for a short term[/b]. That demand is NOT so called milliners going, "ha! now I have kids and I have a good job, gotta go out and buy a house absolutely right NOW!". That's BS and any sane person (not too many here) knows it.
Well, all those "extraordinary" programs from the last 2 years have either already ended or will be ending shortly. AND given the rise in "real" inflation (i.e. cost of everyday goods), the Fed is on a warpath to raise interest rates at the fastest pace in the last 40 years. You REALLY think that will not end up in demand destruction on almost every front, including housing/RE?? If you think so, I got a bridge somewhere...
If DEMAND is what is causing prices to go exponential, then the demand DESTRUCTION is coming. Doesn't happen overnight, but it's coming, if not already being felt in RE already (it is). And RE is about the worst investment if hedging against inflation is your objective. No other asset class has a ~1.5% (property taxes/insurance/maintenance) carrying cost every YEAR. You could have bought any number of other investments (interest rate swaps, Eurodollar options, TIPS) and you'd be perfectly hedges against inflation without that huge carrying cost.
If the above makes your head spin, you have no business commenting on the state of markets/asset classes.
Alternatively, a more simple explanation: demographic boom as Millennial generation enters their prime child rearing years and putting very high demand for SFHs near job centers. A lost decade of development, particularly in family-sized homes, as part of the hangover of the Financial Crisis. And Boomers living in under-utilized real estate as they are not downsizing at rates previously predicted.
Nope. There's no "alternatively".
No demographic boom develops this fast. Millennials where there before the pandemic, are there now, and will be growing older as we speak. Their financial situation did not change OVERNIGHT or within the last 2 years. There's no "cliff" where suddenly all millennials went... ^read above.
This is what I meant by "sane". People are free to rationalize things however they want, nobody's stopping them from that. But when they start offering misguided, uninformed opinions on things that they shouldn't, is when I start getting frustrated about the BS being spewed. I do the above for a living, am very successful at it, and have access to information and markets that the average person does not. I can SEE markets reacting to these things on short/medium term basis. Longer term is always about predictions, and nobody is good at it, including me.
The ONLY reason housing/RE has such a big presence from a financial perspective, is not because "You need a place to live", it's because there are almost no other asset classes (for the average person) where you can leverage your (rather small) investment 20x or even unlimited (0% down). It's LEVERAGE that causes distortions in this space, not DEMAND.
Ask yourself this. When you get a 30 year fixed mortgage with 5% down, who da $#@! is lending you the other 95% at a pitiful rate of under 3% for THIRTY years. Somebody has to put up that money, right? Otherwise you'd never be able to get a mortgage. That's the Bond market. And the Fed controls it, is not outright own it (in Japan's case). Why would somebody lend you money at 3% for THIRTY years, when a 10Y treasury bond now pays 5%?? And that "LENDER OF LAST RESORT", i.e. the Fed is TELLING you (and you're not listening) that they are cutting back, if not stopping it altogether.
THINK. (Not too many people do that)
+1 the idea that a bunch of “millennials” were homeless before March 2020, or were living with their parents even though they could afford it and are now clamoring to pay 40% more for a house, is ludicrous. Nor did millions of houses just stop existing.
That fact is, demand increased greatly because conditions to buy vs the other options were perceived as excellent in 2020. Extremely low interest rates (which very importantly created a whole new class of mom and pop investors), stimulus (student loan pause and mortgage moratoriums, child tax credits, checks for thousands of dollars, PPP loans, etc) wanting to buy a second home or moving to a low COL area because of WFH, etc. That whipped the media into a frenzy and created a FOMO atmosphere. Problem is, those factors are gone now and people aren’t so much fearing of missing out.
The good news is that the crazy rush didn’t last that long, so most people who bought before 2020 will still be very happy to sell their house for a tidy profit even if prices drop 20-30%. The only people requiring these crazy prices in the face of much lower demand will be people holding the bag of 2020-2021.
Back in Mar 2020, MOST urban millennials were living in condos, maybe townhouses. Professionals were just starting to have kids as they established careers, paid off student debt, and gotten married. They may have a baby, and planned to eventually move to the SFH in the burbs, but they wanted to be able to walk to bars and coffee shops and dog parks and artisanal pacifier shops. Then pandemic hits, and WFH with their spouse and dog and maybe a baby clinches it -- they need a proper SFH NOW. And thus began the great Millenial exodus (which was kinda of already underway, but this poured gasoline on it).
Admittedly my sample is skewed but this rings true for me because it describes me and literally all of my friends. At least in my circles, the exodus continues…
PP here. And you and all of your friends are perfectly happy paying these absurdly high and superficially elevated prices, because...you just HAD to get out of the urban area/city??
if so, you're going to be in world of hurt financially, shortly. You're not just paying a high price to acquire an asset, you're gonna be paying elevated property taxes, home owners insurance, and unless you paid cash (which I promise you, none of you did) one lil blip in prices, and you're upside down on the asset. Sure, you may not have to sell, but you're continuing to pay for an asset (with interest) that is diminishing in value. Yes, I said diminishing in value, because unless the "Greater Fool Theory" holds true, the writing is on the wall. i.e. The Fed's wall. They are TELLING you (and you're not listening).
This is not unfounded doom and gloom, this is literally the markets in action, telling you what's coming.
Eh. Maybe. I think the point PPs and I are trying to make is that pre-pandemic the millennial generation was just getting into the swing of child bearing/raising into the post-toddler years and was also delaying the move to the suburbs longer than previous generations, but the pandemic changed that and so now you have the demographics of the largest generation all starting to swell toward elementary aged kids plus all ceasing with the delay to the move to the suburbs. So, demand is robust enough to withstand some headwinds….
"Eh. Maybe" - Seriously? That's all you can come up with?
Again, demographic changes don't happen overnight or within two years. They are a slow moving and happen over time. I'm not arguing with your premise that the millennial generation is reaching the household formation stage. What I'm arguing is that unless they are dumb %#cks, anybody sane would evaluate the current frenzy in the RE markets with an analytical frame of mind. Houses are "Need a place to live", but they are never "Need a place to live RIGHT $#@cking NOW". That's absurd and you know it.
Again, you can rationalize it however you want, that's your prerogative, but spewing an opinion that "So, demand is robust enough to withstand some headwinds…." is nucking futs, when you're not qualified to do so. I am, you're not.
To answer the other PP's question: yeah, this person is definitely getting off on this. Yikes!
PP here. I'm not "getting off" on this or anything else. I'm simply providing an opinion of an investment banker (and very successful at that, thank you), which there seems to be a dearth of, here. Houses ARE investments, so why would an investment bankers opinion be "Yikes"??
No inventory and consumer affordability = no bubble
Investment Banker here.
So, riddle me this genius. If your interpretation of the data is THAT, why are interest rates rising at the fastest pace in 40 years? (They are). What tea leaves are the bond market traders reading, that you're not?
interest rates are rising because of the federal funds rate which is tied up w the federal reserves attempts to bring inflation back under control. with rising rates, properties will start moving somewhat more slowly w fewer bidding wars and more price cuts. this will be due to less buying power. there is no real indicator that the fundamentals are not otherwise there and unlikely to be any widespread market collapse.
Anonymous wrote:interest rates are rising because of the federal funds rate which is tied up w the federal reserves attempts to bring inflation back under control. with rising rates, properties will start moving somewhat more slowly w fewer bidding wars and more price cuts. this will be due to less buying power. there is no real indicator that the fundamentals are not otherwise there and unlikely to be any widespread market collapse.
I...er...uhh...did I not just... (Investment Banker here, just so you know, who's responding)
No inventory and consumer affordability = no bubble
Investment Banker here.
So, riddle me this genius. If your interpretation of the data is THAT, why are interest rates rising at the fastest pace in 40 years? (They are). What tea leaves are the bond market traders reading, that you're not?
What do the bond market’s recent moves have to do with a housing bubble (or lack thereof)?
No inventory and consumer affordability = no bubble
Investment Banker here.
So, riddle me this genius. If your interpretation of the data is THAT, why are interest rates rising at the fastest pace in 40 years? (They are). What tea leaves are the bond market traders reading, that you're not?
What do the bond market’s recent moves have to do with a housing bubble (or lack thereof)?
Umm...is that really a serious question? Please tell me it's not.
If any of you are geo-politically and global finance minded, read this. (I don't ascribe to Zero Hedge's opinions entirely, but the information presented in this article is fairly accurate. I say this as someone who uses a $25K/mo Bloomberg terminal daily, and is in regular contact with some of the entities mentioned int he article).
NP. I thought the problem was supply not demand. In other words there is not an unusual amount of buyers but that there is historically low inventory and that’s what’s driving the frenzy. Is that not the case?
Anonymous wrote:NP. I thought the problem was supply not demand. In other words there is not an unusual amount of buyers but that there is historically low inventory and that’s what’s driving the frenzy. Is that not the case?
That's blasphemy!!
We just covered pages and pages worth of discussions as to why the "Millennials" are ready to buy a house...at ANY price, consequences be damned!
Anonymous wrote:NP. I thought the problem was supply not demand. In other words there is not an unusual amount of buyers but that there is historically low inventory and that’s what’s driving the frenzy. Is that not the case?
I’m asking the above based on the comments about tons of millennials buying.
Anonymous wrote:NP. I thought the problem was supply not demand. In other words there is not an unusual amount of buyers but that there is historically low inventory and that’s what’s driving the frenzy. Is that not the case?
I’m asking the above based on the comments about tons of millennials buying.
And that's what I responded to. It's not like a light bulb just went on...Oh shit! We live in an urban area, and we can/will/maybe have kids and we can WFH so let's go out pay absurd prices in far out locales that...just two years ago, were stagnating with multiple price cuts. If they were buying at THOSE prices, it'd be reasonable, I can certainly agree with the WFH progression giving people the ability to move further out, but at what price?
Anonymous wrote:NP. I thought the problem was supply not demand. In other words there is not an unusual amount of buyers but that there is historically low inventory and that’s what’s driving the frenzy. Is that not the case?
That's blasphemy!!
We just covered pages and pages worth of discussions as to why the "Millennials" are ready to buy a house...at ANY price, consequences be damned!
Most millennials I know do not have the wherewithal for $1.5M financing. So not ANY price. I may be hanging out with the wrong crowd.
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