Anonymous
Post 03/31/2022 23:11     Subject: Federal Reserve: signs abound that housing market is entering bubble territory
Anonymous wrote:https://calculatedrisk.substack.com/p/housing-dont-compare-the-current


Agree with this.
“ However, we should expect something similar to the what happened in the late ‘70s - a decline in real house prices seems likely, and I also expect some decline in housing starts and new home sales. With solid lending, nominal prices should be sticky downwards, and I don’t expect national declines in nominal prices.

The size of the declines in new home sales and housing starts will depend on how much inflation is embedded, and therefore how much the Fed will have to raise rates (and reduce their balance sheet) to control inflation. If a large portion of inflation is transitory, the impact on housing will be minimal. However, if the Fed has to raise rates significantly, then we would expect a larger impact.

Currently we just have to watch and wait. However, we can be fairly confident that we won’t see cascading nominal price declines like during the housing bust - since there will be few distressed sales.”

Anonymous
Post 03/31/2022 22:37     Subject: Federal Reserve: signs abound that housing market is entering bubble territory
Anonymous wrote:https://calculatedrisk.substack.com/p/housing-dont-compare-the-current



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.
Anonymous
Post 03/31/2022 22:06     Subject: Federal Reserve: signs abound that housing market is entering bubble territory
https://calculatedrisk.substack.com/p/housing-dont-compare-the-current
Anonymous
Post 03/31/2022 20:02     Subject: Federal Reserve: signs abound that housing market is entering bubble territory
Anonymous wrote:What will this minor correction look like?

Are we talking a home that is valued at $850k drops $50k or more like $100k in value? Or will be even more slight?

I've been very tempted to sell but then that would mean buying another home. The buying part and future corrections are what have kept me from listing.

My sister just closed on a house where they had to offer $50k over asking, waive all contingencies, and do a 3-month rent back to the sellers rent free so their kids could finish out the school year in mid-June. They only got this home because their agent was tipped off by her sister, also a realtor, before it hit the MLS. Before that, they'd lost out on something like 5 or 6 places. The last house they lost out on was a full cash offer accepted - $1.3mil.


If there is a correction, prices will decrease across the board and most everything will probably spend some time at at least it’s 2019 valuation. But some properties will lose much more value, and some will not. This is because some properties’ recent purchase prices were completely unhinged from the reality of the properties’ fundamentals (location, sf, fundamental condition, etc) and others sold closer to their fundamental value. Buyer psychology, marketing, luck, and timing all played a role in these differences. So it will probably look different for different properties, but fundamental measures like price per sf will decrease across the board.
Anonymous
Post 03/31/2022 19:51     Subject: Federal Reserve: signs abound that housing market is entering bubble territory
Anonymous wrote:What will this minor correction look like?

Are we talking a home that is valued at $850k drops $50k or more like $100k in value? Or will be even more slight?

I've been very tempted to sell but then that would mean buying another home. The buying part and future corrections are what have kept me from listing.

My sister just closed on a house where they had to offer $50k over asking, waive all contingencies, and do a 3-month rent back to the sellers rent free so their kids could finish out the school year in mid-June. They only got this home because their agent was tipped off by her sister, also a realtor, before it hit the MLS. Before that, they'd lost out on something like 5 or 6 places. The last house they lost out on was a full cash offer accepted - $1.3mil.


Could you sell, pocket the equity cash in a 6 month CD, then buy in 6-12 months during the correction? I know that’s not practical for many people (moving twice, renting in between) but from a financial standpoint that would be the ideal thing to do.
Anonymous
Post 03/31/2022 19:14     Subject: Federal Reserve: signs abound that housing market is entering bubble territory
What will this minor correction look like?

Are we talking a home that is valued at $850k drops $50k or more like $100k in value? Or will be even more slight?

I've been very tempted to sell but then that would mean buying another home. The buying part and future corrections are what have kept me from listing.

My sister just closed on a house where they had to offer $50k over asking, waive all contingencies, and do a 3-month rent back to the sellers rent free so their kids could finish out the school year in mid-June. They only got this home because their agent was tipped off by her sister, also a realtor, before it hit the MLS. Before that, they'd lost out on something like 5 or 6 places. The last house they lost out on was a full cash offer accepted - $1.3mil.
Anonymous
Post 03/31/2022 19:07     Subject: Re:Federal Reserve: signs abound that housing market is entering bubble territory
Anonymous wrote:
Anonymous wrote:someone just tell me what to do.
We live in the midwest and have our primary home and lake home paid for. We are three years from retirement.
We want to buy our snowbird place in SWFL somewhere where we can have our boat in close proximity, like, in our back yard.

Pull the trigger now or wait? We'll pay cash. It makes no sense to do it now, right? Unless housing prices for sure, in that neck of the woods, go up.


If you are paying cash there is no reason not to wait to see what happens with the bubble. You won't be affected by raising interest rates and you can pick up some good bargains as interest rates lower purchase prices. If there actually is a correction in the next 6 months, then you can pick up some great bargains. You should absolutely wait at least 6 months. If you are set on spending extended time down there this winter, you can always get a short-term rental.


I think this is probably the best advice. However, SW Florida is an area that has seen big population gains, and they were starting from a lower baseline in terms of real estate prices, so I’d think that area is less likely to see a real fall off in prices than areas where prices have been going up despite a loss in population. There’s more ability to build new houses there, but that doesn’t apply if you want waterfront. IME, as someone who bought waterfront property in 2005 and sold it in 2010, waterfront houses tend to hold their value. They aren’t making any more. It is possible to lose money in waterfront property, but you’re unlikely to lose your shirt on it.

Anonymous
Post 03/31/2022 19:03     Subject: Federal Reserve: signs abound that housing market is entering bubble territory
Anonymous wrote:
Anonymous wrote:
Anonymous wrote:
Anonymous wrote:
Anonymous wrote:
Anonymous wrote:
Anonymous wrote:
Anonymous wrote:
Anonymous wrote:Be wary of over confidence on either side. For my job I get exposure to some of the greatest minds on finance, and the amount of folks that predicted that the market would hit all time highs in the midst of record setting coronavirus numbers and new variants is zilch. The point being, people on an anonymous forum, most of whom are lawyers, doctors, lobbyists, stay at home moms, won’t be able to predict what happens to asset prices, so stop mentally masturbating on here even though it can be fun because it’s a waste of time.



They didn't predict a record high because it is fake.

All US assets from housing to stocks are grossly overvalued because of the Federal Reserve, massive amounts of money printing, massive injection of multi trillion dollar stimuluses, and too much credit liquidity. It is a fake diabetic sugar rush. Bubbles built on cheap and easy money they produce an environment of irrational exuberance when people all think stocks or housing only ever go up always end so badly when the sugar rush ends.


Agree on stock market.

Housing is different. People need a place to live. Unless people are foreclosing we won’t have a bubble “pop”.




This is EXACTLY (word for word) what all of the economists said when they were explaining why there wouldn’t be a crises in 2007.

I don’t know if the bubble will pop or not, but people saying stuff like this to explain why it won’t makes me think it’s more likely, rather than less.


It’s much different today. Predatory lending is not rampant. ARM loans aren’t going to jump out of control.

People were foreclosing because they were in precarious financial situations. That’s not the case today.


No, people were for closing because they were in precarious financial situations and they could not sell their house for what they bought it for.

Do you really think everyone who bought at the top of their DTI last year is in a great financial spot? Do you not see how inflation is affecting everyday Americans? What about the impending recession?


They were trying to sell because they couldn’t pay the mortgage.

Gas & food increases aren’t comparable to huge jumps in mortgages. People can adjust their driving and eating habits. They can’t adjust their mortgage payment.


Sure you can. You can get roommates. You can rent out your place and move somewhere cheaper.


If you can't sell your property for what you paid, why in the world would a renter pay enough to cover your mortgage? Rents would also be done in that scenario. It will be a renter's market (and a buyer's market). Why would a renter move in with you to help you pay your mortgage when there are a lot of other options? Also, what family with kids wants to take a stranger into their home just to pay the mortgage in an underwater house? Most people would vastly prefer bankruptcy to taking in a boarder just to hang onto an overpriced and underwater asset.



*Prices would also be down in that scenario. Rents and purchase prices track together. As housing prices decrease, rents will also decrease as more owners try to rent out what they can't sell (without taking a loss).
Anonymous
Post 03/31/2022 18:58     Subject: Federal Reserve: signs abound that housing market is entering bubble territory
Anonymous wrote:
Anonymous wrote:
Anonymous wrote:
Anonymous wrote:
Anonymous wrote:
Anonymous wrote:Be wary of over confidence on either side. For my job I get exposure to some of the greatest minds on finance, and the amount of folks that predicted that the market would hit all time highs in the midst of record setting coronavirus numbers and new variants is zilch. The point being, people on an anonymous forum, most of whom are lawyers, doctors, lobbyists, stay at home moms, won’t be able to predict what happens to asset prices, so stop mentally masturbating on here even though it can be fun because it’s a waste of time.



They didn't predict a record high because it is fake.

All US assets from housing to stocks are grossly overvalued because of the Federal Reserve, massive amounts of money printing, massive injection of multi trillion dollar stimuluses, and too much credit liquidity. It is a fake diabetic sugar rush. Bubbles built on cheap and easy money they produce an environment of irrational exuberance when people all think stocks or housing only ever go up always end so badly when the sugar rush ends.


Agree on stock market.

Housing is different. People need a place to live. Unless people are foreclosing we won’t have a bubble “pop”.




This is EXACTLY (word for word) what all of the economists said when they were explaining why there wouldn’t be a crises in 2007.

I don’t know if the bubble will pop or not, but people saying stuff like this to explain why it won’t makes me think it’s more likely, rather than less.


It’s much different today. Predatory lending is not rampant. ARM loans aren’t going to jump out of control.

People were foreclosing because they were in precarious financial situations. That’s not the case today.


There are many ways asset bubbles can pop. I think the point PP was making was that in 2007 people were saying housing can’t pop because people will always need a place to live. They were wrong.

But since you mentioned precarious financial positions, it is way worse today. In the early 2000s, loan products were developed to allow nontraditional (subprime) borrowers buy a house. Looser lending standards, ARMs to bring down their interest rates, etc. This caused an increase in demand for housing, which lead to irrational exuberance (aka FOMO) and spurred a building boom. Turned out there were plenty of houses and then too many houses, and prices started to decline. When ARMs reset, people who had stretch could no longer afford their mortgage, but also could not sell for what they bought it for so they walked away. The banks holding these mortgages were screwed and by 2008 a liquidity crisis ensued. While banks went under, the stock market crashed, and people loss their jobs. It was during this recession that people REALLy started losing their homes. No job, no mortgage payment. So yes sub prime lending was like a match in the tinderbox, but there are other ways to pop that bubble, including other factors that could cause people to not be able to afford their mortgage.

In 2020, low interest rates, government stimulus, investment activity, and Covid lifestyle issues created a huge surge of demand that has lead to a very similar irrational exuberance (must buy now before I’m priced out forever!). These factors driving demand are truly transitory, and only the exuberance remains. But that exuberance is waning as interest rates have skyrocketed and make real estate look like not that great of a return in your investment anymore. The Fed is deliberately slowing down the economy. People will spend less and lose jobs (Powell himself said employment is too high!). More new houses in the pipeline than since 2006. And with inflation, people who stretched to the top of their preapprovals last year (see Dallas Fed article on price-income ratios) could really have a hard time making ends meet. In 2008, ARM adjustment is what sent these people over their limit - why not gas prices, food prices, and job loss in 2022-23?


Well said. Bottom line: there are a lot of people who are stretching to the limit to buy, and the cost of everything is going up.

Will unemployment stay low? Maybe, maybe not. But the Fed needs demand for employment to slow to slow down inflation. Recession/stagflation and lots of people stretched to the limit to pay their mortgage is not a good combination.
Anonymous
Post 03/31/2022 18:56     Subject: Federal Reserve: signs abound that housing market is entering bubble territory
Anonymous wrote:
Anonymous wrote:
Anonymous wrote:
Anonymous wrote:
Anonymous wrote:
Anonymous wrote:
Anonymous wrote:
Anonymous wrote:Be wary of over confidence on either side. For my job I get exposure to some of the greatest minds on finance, and the amount of folks that predicted that the market would hit all time highs in the midst of record setting coronavirus numbers and new variants is zilch. The point being, people on an anonymous forum, most of whom are lawyers, doctors, lobbyists, stay at home moms, won’t be able to predict what happens to asset prices, so stop mentally masturbating on here even though it can be fun because it’s a waste of time.



They didn't predict a record high because it is fake.

All US assets from housing to stocks are grossly overvalued because of the Federal Reserve, massive amounts of money printing, massive injection of multi trillion dollar stimuluses, and too much credit liquidity. It is a fake diabetic sugar rush. Bubbles built on cheap and easy money they produce an environment of irrational exuberance when people all think stocks or housing only ever go up always end so badly when the sugar rush ends.


Agree on stock market.

Housing is different. People need a place to live. Unless people are foreclosing we won’t have a bubble “pop”.




This is EXACTLY (word for word) what all of the economists said when they were explaining why there wouldn’t be a crises in 2007.

I don’t know if the bubble will pop or not, but people saying stuff like this to explain why it won’t makes me think it’s more likely, rather than less.


It’s much different today. Predatory lending is not rampant. ARM loans aren’t going to jump out of control.

People were foreclosing because they were in precarious financial situations. That’s not the case today.


No, people were for closing because they were in precarious financial situations and they could not sell their house for what they bought it for.

Do you really think everyone who bought at the top of their DTI last year is in a great financial spot? Do you not see how inflation is affecting everyday Americans? What about the impending recession?


They were trying to sell because they couldn’t pay the mortgage.

Gas & food increases aren’t comparable to huge jumps in mortgages. People can adjust their driving and eating habits. They can’t adjust their mortgage payment.


Sure you can. You can get roommates. You can rent out your place and move somewhere cheaper.


If you can't sell your property for what you paid, why in the world would a renter pay enough to cover your mortgage? Rents would also be done in that scenario. It will be a renter's market (and a buyer's market). Why would a renter move in with you to help you pay your mortgage when there are a lot of other options? Also, what family with kids wants to take a stranger into their home just to pay the mortgage in an underwater house? Most people would vastly prefer bankruptcy to taking in a boarder just to hang onto an overpriced and underwater asset.
Anonymous
Post 03/31/2022 18:54     Subject: Re:Federal Reserve: signs abound that housing market is entering bubble territory
You should absolutely wait at least 6 months.


what I thought, thanks.
Anonymous
Post 03/31/2022 18:53     Subject: Re:Federal Reserve: signs abound that housing market is entering bubble territory
Anonymous wrote:
Anonymous wrote:someone just tell me what to do.
We live in the midwest and have our primary home and lake home paid for. We are three years from retirement.
We want to buy our snowbird place in SWFL somewhere where we can have our boat in close proximity, like, in our back yard.

Pull the trigger now or wait? We'll pay cash. It makes no sense to do it now, right? Unless housing prices for sure, in that neck of the woods, go up.


If you're paying in cash and retiring there, why does it matter if the prices go down?


want to get the best money can buy and being we can wait three years, maybe we should.
Anonymous
Post 03/31/2022 18:52     Subject: Re:Federal Reserve: signs abound that housing market is entering bubble territory
Anonymous wrote:someone just tell me what to do.
We live in the midwest and have our primary home and lake home paid for. We are three years from retirement.
We want to buy our snowbird place in SWFL somewhere where we can have our boat in close proximity, like, in our back yard.

Pull the trigger now or wait? We'll pay cash. It makes no sense to do it now, right? Unless housing prices for sure, in that neck of the woods, go up.


If you are paying cash there is no reason not to wait to see what happens with the bubble. You won't be affected by raising interest rates and you can pick up some good bargains as interest rates lower purchase prices. If there actually is a correction in the next 6 months, then you can pick up some great bargains. You should absolutely wait at least 6 months. If you are set on spending extended time down there this winter, you can always get a short-term rental.
Anonymous
Post 03/31/2022 18:51     Subject: Re:Federal Reserve: signs abound that housing market is entering bubble territory
Anonymous wrote:someone just tell me what to do.
We live in the midwest and have our primary home and lake home paid for. We are three years from retirement.
We want to buy our snowbird place in SWFL somewhere where we can have our boat in close proximity, like, in our back yard.

Pull the trigger now or wait? We'll pay cash. It makes no sense to do it now, right? Unless housing prices for sure, in that neck of the woods, go up.


If you're paying in cash and retiring there, why does it matter if the prices go down?
Anonymous
Post 03/31/2022 18:48     Subject: Re:Federal Reserve: signs abound that housing market is entering bubble territory
someone just tell me what to do.
We live in the midwest and have our primary home and lake home paid for. We are three years from retirement.
We want to buy our snowbird place in SWFL somewhere where we can have our boat in close proximity, like, in our back yard.

Pull the trigger now or wait? We'll pay cash. It makes no sense to do it now, right? Unless housing prices for sure, in that neck of the woods, go up.