Is The Flaming Marshmallow Housing Market Starting To Cool?

Last month, I called the US housing market a “giant flaming marshmallow.”

Pandemic dynamics (e.g., the proliferation of work-from-home arrangements and the desire to keep a safe distance from other people who might be infected) combined with record-low mortgage rates (themselves a product of the pandemic, via Fed policy), have almost surely created a bubble in US housing.

However, I’ve derided the imprecision of the term “bubble” and variously chided folks for the reckless abandon with which the term is applied. So, I was compelled to come up with a more “scientific” way to describe an overheating housing market.

I landed on “giant flaming marshmallow.” Originally, I applied it to housing starts.

Fast forward a month, and residential starts posted their first decline since August, falling 6% in January after a revised 8.2% rise in the previous month.

Is the marshmallow cooling? Well, maybe. After all, the dynamics described above served to drive prices into the stratosphere during 2020, and affordability serves as a natural check on demand.

Rock-bottom mortgage rates ameliorate that, but only to a point. You still need a down payment.

On Wednesday, NAHB spoke of “skyrocketing” prices for lumber. “Lumber prices have been steadily rising this year and hit a record high in mid-February, adding thousands of dollars to the cost of a new home and causing some builders to abruptly halt projects at a time when inventories are already at all-time lows,” NAHB Chairman Chuck Fowke remarked, in color accompanying this month’s read on builder confidence.

The group’s chief economist described demand as “solid” citing, among other things, “low mortgage rates and the suburban shift to lower cost markets,” but added that “some cooling in growth rates for residential construction” is likely this year thanks in part to rising costs. Builder expectations are still elevated, but did fall to a six-month low.

You can take all of this for what it’s worth, but I would venture that we may have seen the top.

Of course, that doesn’t mean some kind of “crash” is in the offing. After all, pandemic dynamics won’t simply fade away overnight. Folks aren’t likely to flood back into dense urban centers even if the vaccines do manage to subdue COVID and its many mutations.

At the same time, low borrowing costs should continue to attract buyers. I’d also just toss this out there: If powerful Democratic lawmakers can convince Joe Biden to go along with massive student debt relief, that too could catalyze a surge in home-buying assuming household formation (both in a figurative and literal sense) is being delayed by the overhang of debt incurred for college.


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10 thoughts on “Is The Flaming Marshmallow Housing Market Starting To Cool?

    1. Did a 1.9 trillion dollar tax cut for the wealthy and corporations grate on you a few years ago? How about banks being bailed out 12 years ago? Or corporations being forgiven their debt during this pandemic?

      I don’t understand why this triggers people, but the above is just considered the normal course of business. Kids with student loan debt aren’t the problem.

    2. I appears to me that every program to help the poor is created to be big, complicated and degrading for the poor. The programs are used by politicians to divide people into voting blocks that are mutually resentful. They are used by business as a source of cheap labor. That’s the reason they are designed this way, to benefit businessmen and politicians while appearing to help the poor. It’s time to end this sham and implement universal healthcare, a basic income and free public education. We can afford twenty carrier battle groups deployed around the world (Russia has one and China has two) so we should be able to afford to take care of our citizens. Make every citizen a beneficiary and eliminate the resentment that divides us. The systems in place have resulted in universal rage, homelessness and an unsustainable caste system in the richest country in history. It’s time to end it so libero can be at peace with the world.

  1. It does make sense that people who paid other kids go to college should get some consideration on their taxes on a look back basis. However it does seem since college aid can be dependent upon net worth that looking at parents net worth who helped their children through school would be a point of fairness. That does open Pandora’s box of a wealth tax, which would have its own benefits in certain circles. I think if politicians have any hope of reaching younger people they must take on this issue. It is every bit of important to younger people as is the environment or school shootings. I see a permanently agreed generation that will assert itself in a rationally or not in the future if something is not done. Then well I guess the marshmallows might be flaming but we may not like what’s fueling the fire.

  2. Subsidized low interest rates are fine in my opinion, but the debt should not be forgiven. It’s a matter of fairness
    for those who worked their way through college avoiding large debt, and those who paid off their debt as soon as
    possible after graduating, (also to parents who saved specifically for college for their kids, and/or paid off their loans). If required annual paybacks are limited to 10% of the students income that year, and with low interest rates,
    most should eventually be able to pay off their loans. Also students now piling up college debt shouldn’t be given
    the message that it’s a loan which is essentially a grant, so borrow as much as you can. Also colleges which list
    loans from the federal government as part of their “financial aid package” to students, are misleading students into
    getting the idea that loans are equivalent to scholarships or lowered tuition based on need. It should be made clear
    that loans are financial obligations, not gifts.

  3. with a 50/50 Senate and Manchin, Synema, Tester I can’t imagine any sweeping changes at this point…I’ve always liked the idea of loan forgiveness programs when people work for local, state, and federal governments, definitely like the refinancing at lower or no interest option….I think the SALT deduction cap should be raised or eliminated … I also think an Wealth tax is well indicated; look no further than the uber wealthy’s new plaything, Bitcoin, as a reflection of the gross disparity of wealth these days, … and of course Elon’s current wealth status…

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