Federal Reserve: signs abound that housing market is entering bubble territory
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Anonymous
Former investment banker here, left for PE like a normal person. The fact that you use “investment banker” shows how much of a tool you are. You literally make pitch decks for a living and get paid a lot for having been willing to work abusively long hours and be the last man standing when all of the folks from your analyst / associate class left for actually fulfilling careers where they aren’t making useless PowerPoints and “turning comments” for a living. |
Anonymous
IB here (Acronym is easier to type...  , and yeah, I'm an early riser)
Well, hello PE guy/gal. More character assassination? Jealousy? Regret about moving to PE? Not getting paid enough there? And yes, I do get paid a lot for whatever it is that I do. Me and my profession aside, I'm seeing radio silence on any of the arguments I've made since yesterday. No one has provided ANY concrete arguments that favors the RE market continuing to rise or even stay flat. None. That's telling. In my profession, I get paid to analyze macro behavior, including human psychology, because guess what? We're dealing with humans for the most part (leaving aside the algo side of things). And I can promise you, everybody here who bought int he last 2 years is getting palpitations, whether they want to or not. Why? The biggest misguided notion in the last two years was that the pandemic will last for years and years. This was exacerbated in no small part by the current resident(s) of the White House, media, health agencies (CDC, NIH and the likes) and vested interests (more on that later). They created a "panic" and people bought into that. All this for a virus, whose fatality rate is no worse than many other things that we've lived with for decades, if not longer. Well, guess what? Two years in, and life is back to normal. Yes, there's still lingering effects of the pandemic, but it's become as easy to handle as annual flu shots. Panic's over. Now comes the hangover. The people who bought houses in the last 2 years were banking/betting on a long lasting pandemic that will fray dense urban cores, which in turn will drive RE demand across the periphery to a much higher level. It DID happen during the pandemic, but we're on the falling side of the bell curve now. Barring another global disaster, that bell curve will hold true in the near future. THAT is what the bond traders are reading, and you're seeing the results of that in rising interest rates. As we speak, any potential home buyers should be looking at the RE market, with this expression (pardon my jest): 
Not this: 
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Anonymous
PP here. Not sure why the Nick Fury image did not load. It was supposed to be...
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Anonymous
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Oh. You're a COVID denier. That does not help you.
We bought last year and are not "getting palpitations", because we bought a house we can afford that we're happy to stay in for decades. We couldn't wait 2-3 years to buy and if prices do drop it won't be right away. It never makes sense to try to time the market. Buy something you like and can afford when you are ready. |
Anonymous
Not a COVID "denier" at all. I was as worried as anybody else during the height of it, especially since I have young kids. However, again, I analyze things for a living and my analysis even then was that there's a lot of unnecessary hysteria, panic and our politicians didn't help to quell that. That said: "we bought a house we can afford that we're happy to stay in for decades" - Good for you! That's how it should be. "We couldn't wait 2-3 years to buy" - Understood. Each family situation is different. "if prices do drop it won't be right away" - See...now we're getting into opinions again. Why do you think they won't drop "right away"? Anything to back that up? "It never makes sense to try to time the market" - That's asinine. Markets are ALWAYS about timing (and prices to a degree). Sometimes prices may be high, but the timing is still right, but more often than not, the luxury of time gives you room to analyze things objectively, not make rash, emotional decisions, especially for one of the biggest financial transactions in an average person's life. "Buy something you like and can afford when you are ready" - Absolutely true. However, I can promise you that a large number of RE transactions in the last two years were not made with that mindset. My analysts are already pointing to lots of data showing "flippers" who bought in the last two years (two years is critical...the whole tax write-off thing) trying to find a greater fool as soon as the two year period was over. |
Anonymous
On average people who try to time the market fail. Of course timing matters, it's just not realistic to expect the typical consumer to be able to do so effectively. As we know the ",experts" all have different opinions so there is no objective information to base such a decision on. The reason I think prices won't drop right away is because in the DMV there is still a lot of demand for homes and until people start losing their jobs, those buyers will not go away. |
Anonymous
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More data points - This was two days ago.
"Redfin Reports The Share of Sellers Dropping Their Asking Price Is Climbing Past Last Year’s Rate" https://www.businesswire.com/news/home/20220407005936/en/Redfin-Reports-Share-Sellers-Dropping-Price-Climbing |
Anonymous
Yeah that share went up by 3-4 percentage points. If price growth is slowing which you'd expect given interest rates, that makes sense. People list too high all the time, it's just a slightly larger share now. Doesn't mean much else. |
Anonymous
Lots more data from Redfin pointing toward a slowdown (this was from more than a week ago, and we are in the height of the spring market). https://www.redfin.com/news/housing-market-update-early-signs-of-a-slowdown/ Even Redfin, which has a vested interest in seeing housing prices go up due to its struggling iBuying business, can’t ignore the stats. https://www.marketwatch.com/amp/story/redfin-stock-tanks-after-forecast-shows-losses-expanding-as-ibuying-business-grows-11645134655 |
Anonymous
Sure, but there's a *long* way between what many of these places were predicting for 2022 even a few weeks ago (10-15% appreciation in most cases) and the catastrophic outcomes that people are predicting on this thread. Double-digit prices increased are obviously not sustainable forever, and interest rates have risen more quickly than most expected because the path of anticipated Fed rate hikes and bond sales has gotten more aggressive than expected. The fact that we're seeing a modest but immediate response is frankly good news, and it cuts against the argument that consumers have entered into some sort of irrational bubble mentality. There's nothing to suggest that any response to increased interest rates is anything more than modest right now. Inflation is problematic for lots of reasons, as are traditional recessions, but the real danger is always from financial crises that cause systemic issues. In that sense, high inflation actually buys the Fed quite a bit of flexibility. They can hit the brakes pretty hard, and inflation-adjusted prices can drop significantly, but as long as nominal prices remain stable, widespread disruption to financial markets remains unlikely. For example, inflation-adjusted home prices could go down in 2022 even if nominal prices go up by 5%! That's a big part of why a large or protracted decline in nominal home prices is unlikely. |
Anonymous
x1 million A slowdown isn't an economic collapse. |
Anonymous
I want you to be right, and I think the RE market is headed for a downturn, but the reasons you give don't support your conclusion. Typical innumerate banker/bullshit artist. (Former trader here.) |
Anonymous
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Lots of workplaces that discouraged telework before COVID are now letting their employees work from home 3, 4, or even 5 days a week when they return. Houses in the burbs will probably continue to be desirable for a while.
Also, some of you don’t get the distinction between “slowdown,” which means rising but at a slower rate (declining marginal increases) vs. actual price declines. |
Anonymous
I didn’t see any catastrophic predictions in this thread. The popping of a bubble is normal and expected (just as recessions are a part of a healthy cycle of economic activity), and it doesn’t have to result in the systemic issues that took down the economy after 2008. But remember, the last housing bubble burst in 2006, two years before the true crisis began. Prices can and will decline regardless of broader systemic issues like risky credit default swaps etc. In 2006, prices declined because the “lack of supply” narrative turned out not to be true, and demand decreased. That was the popping of the bubble. THEN, if prices hadn’t gone down, all those subprime borrowers who couldn’t make their payments could have sold their houses for a profit. Instead, they were underwater. That’s when the foreclosures started, and the rest is history. [Note - I think there are a multitude of ways we could be facing a systemic crisis in the economy soon, but that is another thread entirely.] And not tracking your first paragraph. Of course the reaction is “modest” right now, it’s only been a few weeks since rates shot up. And there are still buyers who are bidding homes up because they want to lock in low rates. The irrational bubble mentality has changed - the party is over, and the media narrative has shifted from “buy now or be priced out forever” to “sell your house while you can!” Inflation is a huge problem for the housing market. In an inflationary environment, people face increased costs from all directions and have trouble making ends meet, which can very well lead to people needing to sell or foreclosing. Raising interest rates is a big problem too, because it is likely to lead to recession and job loss, which again leads to selling and/or foreclosing. There really is no good way out and most analysts are not optimistic that the Fed will achieve a “soft landing.” |
Anonymous
IB here. Well, now it's a party! We have an investment banker, a PE guy/gal and now a trader guy/gal. Wanna expand on my reasons and conclusions that don't seem to support each other? Saying that a statement doesn't support something, is meaningless unless you can provide a counter argument, which you haven't. I'll happily and publicly say I'm wrong if you can prove it, oh hell, forget proving, just provide a good counter argument.. |