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

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[quote=Anonymous][quote=Anonymous][quote=Anonymous][quote=Anonymous][quote=Anonymous]More data points - This was two days ago.

"[b]Redfin Reports The Share of Sellers Dropping Their Asking Price Is Climbing Past Last Year’s Rate[/b]"

https://www.businesswire.com/news/home/20220407005936/en/Redfin-Reports-Share-Sellers-Dropping-Price-Climbing[/quote]

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.[/quote]

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[/quote]

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.[/quote]

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.”[/quote]

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