Reply to Federal Reserve: signs abound that housing market is entering bubble territory

Forum Index » Real Estate

Reply to "Federal Reserve: signs abound that housing market is entering bubble territory"

Subject:

Emoticons





More smilies

Text Color: Font: Close Marks

[quote=Anonymous][quote=Anonymous]https://calculatedrisk.substack.com/p/housing-dont-compare-the-current[/quote]

I know this guy has a cult following, but he’s a retired technology executive, not an economist. In my opinion (and, evidently, the opinion of at least some Fed economists) this guy is underestimating the degree to which people are overextended on their mortgages as we head into a potential recession. McBride talks about distressed sales being a big catalyst for the 2007 crash, and that’s right, but that cyclone was also fed by the unregulated secondary derivatives market.  Today, we also have an issue of overextended owners, but it’s not as dramatic as 2007 (better lending practices) and even if there are significant numbers of distressed sales, it shouldn’t unravel the rest of the economy (unless the Fed unintentionally triggers this through its planned MBS sell off). So we are looking at a smaller, more controlled version of 2007 (housing price downturn fueled by overextended distressed sales, which itself is fueled by a correction caused by increased interest rates) unless the Fed MBS sell off throws the market into a panic by accelerating the downturn beyond what investors are willing to tolerate in the short term. So anything between a moderate downturn to a spiraling collapse is very possible. My own view (which I hope is more than wishful thinking) is that it will be closer to a downturn than a spiral because I think market regulators learned a lot from 2007 and have some tools st the ready to stave off a complete panic.

What’s so frustrating on this board, and in this substack, and elsewhere is that people are quick to insist this isn’t 2007 because most lending portfolios are on much more solid ground (ie the mortgages in a given bundle are less precarious) than in 2007, and that’s quite right.  But what these folks fail to appreciate is that we have new (but equally scary) fundamental problems in the market right now— namely the Fed’s portfolio and market behavior during unpredictable pandemic  cycles (an unpredictability that is increased by the looming threat of both a new Cold War and a new recession). So no, the same circumstances that gave rise to the 2007 collapse are not in place now. Instead we have different and potentially scarier problems. [/quote]

Options

	Disable HTML in this message
	Disable BB Code in this message
	Disable smilies in this message

Review message

Search Recent Topics Hottest Topics